April 1 (Bloomberg) -- Taiwan's Taiex Index beat the world's biggest stock markets in the first quarter on prospects the election of a pro-China president will help ease travel and investment restrictions with the fastest-growing major economy.

The Taiex posted the only gain among benchmark indexes for the 20 largest markets, climbing 0.8 percent in the three months ended March 31, according to data compiled by Bloomberg. The Standard & Poor's 500 Index, Japan's Topix Index and the U.K.'s FTSE 100 Index all declined, while the MSCI World Index posted its worst quarterly drop since 2002, the data show. Taiwan's benchmark retreated 1.8 percent today, compared with a 0.1 percent decline in the MSCI World.

The election of Ma Ying-jeou from the opposition Kuomintang party March 22 helped the Taiex race past Brazil's Bovespa Index, the best performer in the first two months. Hung Poo Real Estate Development Corp. and Formosa International Hotels Corp. led the gains. Taiwan has restricted direct shipping, air and postal links with China since the Kuomintang retreated to the island in 1949 after losing a civil war to the Communist Party.

``Taiwan's election result has changed sentiment,'' said Nicole Sze, a Singapore-based investment analyst at Bank Julius Baer & Co., which manages $350 billion in assets worldwide. ``Investors are now more positive on trade between the island and China and political stability in the region.''

Slow Changes

Changes promised by Ma, which include opening up the market to Chinese tourists and resuming direct flights, won't happen overnight and the island isn't immune to contagion from mounting credit losses worldwide, according to Louisa Lo, head of Asian equities at Schroders Plc in London. Taiex companies trade for 18.4 times reported profit, the fourth-highest among the 20 biggest stock markets. The MSCI Emerging Markets Index of developing nations trades for 15 times reported earnings.

Among the 20 biggest markets, Argentina's Merval Index was the best performer in the Americas, falling 2.2 percent in the January-March quarter on higher demand for oil and agricultural exports. The S&P 500 dropped 9.9 percent, while Brazil's Bovespa fell 4.6 percent.

In Europe, the FTSE 100 posted the smallest decline in the quarter among the biggest equity markets, helped by gains of more than 10 percent in Tate & Lyle Plc, Europe's biggest sugar refiner, and British Energy Group Plc, the U.K.'s largest nuclear power producer.

In U.S. dollar terms, the 676-company Taiex was up 7.6 percent in the first quarter, also the best among the world's 20 largest stock markets.

Ma, 57, will succeed Chen Shui-bian, who pushed for more international recognition of Taiwan and restricted investment on the mainland, the island's biggest market.

`Direct Links'

``Playing the Taiwanese election has been one theme that has worked so far in emerging markets this year,'' said David Semple, who helps manage $11 billion in emerging market stocks and commodities as investment director at Van Eck Associates in New York. ``It's all about direct links with China.''

Van Eck owns shares of smaller technology companies in Taiwan, including Chroma Ate Inc., the maker of testing equipment for computers and cars, and China Ecotek Corp., a builder of environmental control systems. The manufacturers aren't as tied to U.S. consumer demand as their larger competitors, Semple said.

The 256 technology stocks in the Taiex, which comprise about half the index's $702.8 billion market value, had a median price- to-earnings ratio of 13 at yesterday's close. The median P/E for the industry in the S&P 500 is 19.6.

Stronger ties with China could attract about $50 billion to the island's markets, according to Zurich-based UBS AG. It also may encourage investment between the two economies, providing a catalyst for property prices in Taiwan, according to Macquarie Group Ltd. analyst Daniel Chang.

Ease Purchase Limits

A measure of property and construction stocks surged 57 percent last quarter, the best performance among the Taiex's 28 industry groups, on speculation the island will ease limits on real estate purchases by Chinese investors.

``Property is one of the sectors that will benefit from easing political uncertainty,'' said Corinne Jian, a Hong Kong- based analyst at Macquarie. ``People don't buy homes nor upgrade when the political outlook isn't good.''

Seven of the Taiex's 10 biggest gains last quarter were in property and construction stocks, including Hung Poo Real Estate Development, which rose 128 percent, and Cathay Real Estate Development, the island's second-largest builder by market value, which climbed 79 percent.

Jian recommended Radium Life Tech Co. and Huang Hsiang Construction Co., which develop, sell and lease properties, as well as real estate broker, Sinyi Realty Co., Taiwan's third- largest property-related stock.

Ma's election has also raised speculation that travel restrictions will be eased. The president-elect pledged on March 22 to end a five-decade ban on regular flights between Taiwan and China as soon as he takes office in May.

The Taiex Tourist Index gained 54 percent during the quarter, the second-best-performing industry. Formosa International Hotels, Taiwan's largest hotel operator by market value, jumped 67 percent, while The Ambassador Hotel, the second-largest, gained 63 percent.

To contact the reporter on this story: Ian C. Sayson in Manila at isayson@bloomberg.net.

Last Updated: April 1, 2008 02:13 EDT