By Tim Culpan and Aaron Pan

March 24 (Bloomberg) -- 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.

Chinatrust Financial Holding Co. and EVA Airways Corp. led gains by banks and travel companies on anticipation of expanded trade and investment links with the world's fastest-growing major economy. Goldsun Development and Construction Co. advanced to its highest in 13 years on prospects for more construction spending.

``We were hoping for a Ma win and our portfolio was positioned for a Ma win,'' said Leslie Phang, head of investments at Singapore-based Schroders Plc's private-clients unit, which has $275 billion under management.

The benchmark Taiex gained 340.36 points, or 4 percent, to 8,865.35 at the close of trade in Taipei, after earlier climbing 6.2 percent, the most since Aug. 20, 2000. Taiwan's currency rose 1.1 percent to NT$30.220 versus the dollar at 2:46 p.m. in Taipei, the strongest in more than 10 years.

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.

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

Do Better

``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.

The legislative victory of the Kuomintang, or KMT, on Jan. 12 turned the Taiex around as investors anticipated a Ma presidency and the 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.

Anticipated Ma

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 has 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.

China Airlines, Taiwan's largest carrier, added 2.7 percent to NT$19.30 and EVA Airways, the second-largest, gained by its daily limit of 6.9 percent to NT$20.50. That's 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.

Liquidity Crisis

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

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 Nationalists 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.''

Political Divide

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.''

To contact the reporters on this story: Aaron Pan in Taipei at Apan8@bloomberg.net; Tim Culpan in Taipei at tculpan1@bloomberg.net.

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