Taiwan’s stocks rallied the most in nearly two years as financial companies jumped on speculation the island will broaden access to China’s capital markets.

The benchmark Taiex index climbed 1.9 percent to 9,797.49 at the close in Taipei, completing its biggest advance since July 2013. A gauge of banks, brokerages and insurers surged 4.7 percent, the most since December 2011. Cathay Financial Holding Co. and Fubon Financial Holding Co., the island’s two biggest lenders by market capitalization, advanced at least 4.7 percent.

China’s securities regulator is studying setting up a stock-trading link between Shanghai and Taipei, the Economic Daily News reported Wednesday, while Taiwan’s government said it will open a cross-border stock trading platform with Singapore on July 1. Hong Kong’s benchmark equity gauge has jumped 17 percent amid record turnover since a link with Shanghai began in November.

“A flurry of news opening up the possibility of stock links with other bourses is reminding investors that financial stocks in Taiwan are undervalued,” said Parker Wu, a portfolio manager at Agriculture Bank of Taiwan in Taipei. “This will be short-lived. It takes time until we see the actual execution of the plans and Taiwan’s political community could be a hurdle.”

David Fuller's view

The Taiwan Stock Exchange Weighted Index (p/e 15.32 & yield 2.97%) jumped nearly 2% today.  It has been consolidating gains above 9500 in a narrow range for the last two-and-a-half months, correcting a previous short-term overbought condition. 

Today’s gains suggest TWSE is now ready to take out the 2007 highs and the psychological 10000 level.  China’s liquidity driven advance is undoubtedly a favourable influence on the region, which has considerable medium to longer term GDP growth potential. 

(Please note: In the interests of full disclosure, I currently hold a spread-bet long position in TWSE futures.)