June 9 (Bloomberg) -- Taiwan’s benchmark stock index may more than double in the next two years as improving ties with China boost investments, according to Taishin Securities Investment Trust Co.

The Taiex index may rise to 15,000 by 2011, said Kevin Lin, assistant vice president in Taipei at Taishin, manager of the island’s third-best performing fund. The measure, which has climbed 43 percent this year, fell 1.4 percent to 6,537.94 as of 9:58 a.m. in Taipei.

Taiwan’s Taiex index surged the most since 1991 on April 30 after the island allowed Chinese investments for the first time since a civil war ended six decades ago. China agreed last week to buy flat panels and components from Taiwan.

“Taiwan shares will continue to be very strong, as it may be re-rated with closer China relations,” Lin, whose firm oversees $800 million of assets, said in an interview yesterday. “It could surpass China and be the best-performing stock index in the region” by 2011, Lin said.

The Taiex is the world’s 10th-best performer among 90 stock gauges tracked by Bloomberg. China’s Shanghai Composite Index is ranked fifth after a 52 percent gain.

Lin, whose Taishin Mainstream Fund was the third-best performer this year among 293 Taiwan equity funds tracked by Bloomberg, said investors should buy shares of technology companies that are “Taiwan’s forte.” The fund gained 70 percent this year, data compiled by Bloomberg data show.

‘Specialty’

The fund’s biggest holdings include Phison Electronics Corp., which makes computer-storage parts, as well as Innolux Display Corp., the world second-largest assembler of flat-screen computer monitors, according to data compiled by Bloomberg.

“Chinese investors will be interested in our tech companies because that is our specialty,” said Lin, 43, whose investments in technology stocks make up as much as 70 percent of the fund’s portfolio.

Lin said he’s holding back on more purchases for the next three months until the economy rebounds. Taiwan’s economy shrank an unprecedented 10.24 percent last quarter as exports fell and businesses cut spending. The government expects growth to resume in the fourth quarter.

“It will be a good time to enter the market again on the good news,” he said.

Taiwan Semiconductor

Credit Suisse Group AG said in a report yesterday that investors should switch from Taiwan to Southeast Asian stocks as the region’s discount to the island is among the largest on record. The brokerage also dropped Taiwan Semiconductor Manufacturing Co., the world’s biggest custom-chipmaker, from its model portfolio for Asia excluding Japan.

Andrew Gillan, who helps oversee more than $25 billion in Asia for Aberdeen Asset Management Group, Scotland’s largest independent money manager, said June 4 the fund doesn’t favor Taiwanese shares because they are “at the mercy of exports, even if the company is well-managed.”

Lin said Taiwan’s economy will get a boost given the potential for trade and investment inflows from China. China’s economy grew 6.1 percent in the first quarter, the weakest pace in almost a decade. The economy will expand 7.8 percent this year, according to the median estimate of 10 economists surveyed by Bloomberg, helped by the government’s 4 trillion yuan ($585 billion) stimulus plan.

Taiwan stocks will be driven by “the China factor,” Lin said. “We have China on our side.”

To contact the reporter on this story: Weiyi Lim in Taipei at Wlim26@bloomberg.net

Last Updated: June 8, 2009 22:04 EDT