Taiwan's stocks and currency surged after Ma Ying-jeou won the presidential election on pledges to forge closer ties with China and boost domestic spending. Foreign fund inflows rose to a record.

Chinatrust Financial Holding Co. and EVA Airways Corp. led gains by banks and travel companies on speculation trade and investment links with the world's fastest-growing major economy will expand. Goldsun Development and Construction Co. advanced to a 13-year high on prospects for more construction spending.

``There'll be significant synergy with China now,'' said Leslie Phang, Singapore-based head of private-clients investments at Schroders Plc's which manages $275 billion. ``We were hoping for a Ma win and our portfolio was positioned for a Ma win.''

The benchmark Taiex gained 340.36 points, or 4 percent, to 8,865.35 at the close of trade in Taipei, after climbing 6.2 percent, the most since Aug. 20, 2000. Trading volume was twice the 90 day moving average, spurred by a record $1.9 billion of foreign inflows. Almost 13 stocks advanced for each that fell.

Ma won by a 17 percent margin over Frank Hsieh of the Democratic Progressive Party in the March 22 election. His pledge to begin direct flights to China in two months and work toward a common market across the Taiwan Strait contrasted with Hsieh's more cautious approach. Ma is also committed to increasing spending to boost the local economy.

Taiwan's currency rose 1.1 percent to NT$30.229 versus the dollar at the close of trade in Taipei, the strongest in more than 10 years. China's CSI 300 Stock Index declined 4.5 percent today while China's yuan last traded at 7.053 to the U.S. dollar, taking gains to 3.4 percent this year.

Tracking the Yuan

Taiwan's dollar has gained as brokers including Goldman Sachs Group Inc. and JPMorgan Chase & Co. recommended buying the currency on expectations it will track gains in the yuan as the two markets further integrate.

Chinatrust, Taiwan's fourth-largest financial-services company, climbed 3.2 percent to NT$31. Goldsun Development, Taiwan's third-biggest construction company, advanced the daily 7 percent limit to NT$22.95, its highest since Jan. 19, 1995.

``It's clear for all to see that the DPP has not managed the government or the economy well these last few years and people are expecting the new government to do better,'' said Albert King, who manages $10 million at Prophet Capital Inc. in Taipei. ``The margin of victory was a surprise to the upside.''

As of March 21, the day before the election, the benchmark Taiex stock index had lost 3.3 percent over the eight years since Chen Shui-bian of the DPP took office on May 20, 2000, trailing the MSCI Asia Pacific Index's 20 percent climb over the same period. Chen's presidency was marked by his insistence that Taiwan maintain an economic and political distance from China, the island's largest trading partner.

Taiex Turnaround

The legislative victory of the Kuomintang, or KMT, on Jan. 12 turned the Taiex around as investors anticipated a Ma presidency and an introduction of his more open policies toward China. The March 22 win means the KMT will control both the legislature and the presidency for the first time since 2000.

Within an hour of claiming victory, Ma, 57, pledged to enact immediately his policy to end a five-decade ban on direct flights between Taiwan and China, which is less than 160 kilometers (100 miles) away. Travelers are currently required to fly through a third port such as Hong Kong, adding up to five hours to flight times.

``From the day we're inaugurated on May 20 we will start work on direct air links,'' Ma told a press conference in Taipei. He's also promised to ease a ban on Taiwan companies investing more than 40 percent of their assets in China, a rule aimed at preventing money and jobs moving away from the island.

`Peace and Prosperity'

China Airlines, Taiwan's largest carrier, added 2.7 percent to NT$19.30 and EVA Airways, the second-largest, gained its 6.9 percent daily limit to NT$20.50, the highest for both companies' shares since March 19, 2004.

``Under my presidency, there will be peace and prosperity across the Taiwan Strait instead of confrontation and tension,'' Ma said in a March 14 interview. He's also pledged to sign a peace treaty with China as a secondary priority behind closer economic ties.

Gains for stocks and currencies may be curbed by a slowdown in the global economy, sparked by tightened liquidity in credit markets caused by the U.S. subprime crisis and concern that the U.S., the world's largest economy, is headed for a recession.

``By simply opening up to China, that's not enough to insulate Taiwan from a global economic slowdown,'' Tony Phoo, an economist at Standard Chartered Bank in Taipei, said before the election. More than half of Taiwan's gross domestic product comes from exports.

Risky Expectations

While Ma has pledged to improve economic ties with China, the two sides remain divided over political issues, including Beijing's insistence that the island recognize its position as a territory of the mainland. Taiwan has maintained a separate government since the Nationalist fled in 1949 amid the Chinese civil war.

``There is a risk in this type of environment for the equity market's expectations to get lifted higher than what political reality suggests could happen,'' said Bernard Liu, head of equity research at JPMorgan Chase & Co. in Taipei, who estimates the Taiex will climb to 10,500 points by December. ``Regardless of the progress on cross-strait relations, the KMT has a lot of power in terms of fiscal spending to help boost the economy.''

Ma said during the campaign he will boost the local economy by raising spending on infrastructure and cutting the unemployment rate to below 3 percent, compared with 3.95 percent in January.

The Taiex index rose 4.5 percent last week, its sharpest advance this year, with foreign investors pumping $830 million into Taiwan equities the day before the election, the most in six months.

``People didn't expect Ma Ying-jeou to win by such a big margin, which probably means the KMT has the mandate to push its policies without obstacles,'' said Ernest Lee, a bond trader at Mega Securities Co. in Taipei. ``The Taiwan dollar is expected to strengthen because of foreign fund inflows.''