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March 09, 2010, 9:01 PM EST

March 10 (Bloomberg) — Investors should buy shares of Taiwanese companies that benefit most from the island’s closer ties with China, according to the manager of Taiwan’s best- performing equities fund.

Investment interest in the economic integration with China “will increase,” said Steve Champion, whose $80 million Taiwan Greater China Fund’s 94 percent return in the past year was the best among 231 funds investing in Taiwan stocks. “This process has the potential to increase the demand for many Taiwan equities and provide a major upside surprise.”

Cheng Shin Rubber Industry co., Giant Manufacturing co., Taiwan Cement Corp., Hon Hai Precision Industry co. and Acer inc. will gain from the improving ties because of their operations on the mainland and their valuations, he said. Hon Hai, the world’s largest contract maker of electronics, is the biggest holding in his fund, data compiled by Bloomberg showed.

Relations between China and Taiwan, which have been ruled separately since a civil war six decades ago, warmed after Ma Ying-jeou took office as the island’s president in may 2008 and abandoned his predecessor’s pro-independence stance.

China’s government plans to sign an economic accord this year with Taiwan to promote trade and investment across the strait, Chinese Premier Wen Jiabao said in his annual speech to the National People’s Congress in Beijing on March 5.

Taiex Outlook

the Taiwan fund, managed from Champion’s Brown Brothers Harrison & co. office in Hartford, Connecticut, beat the 68 percent advance in the Taiex index in the past year. the benchmark measure may surpass the 2007 high of 9,860 in the next one year, said the fund manager, who spent 14 years living in Taiwan. the Taiex rose 29.37, or 0.4 percent, to 7,799.96 as of 9:27 a.m., set to close at a six-week high.

Taiwan shares have gained since Ma sought better relations with the island’s biggest trading partner to boost growth. the economy exited the deepest recession on record in the fourth quarter, the statistics bureau said Feb. 22.

“The economic integration between Taiwan and China is one of the great macro stories in the world today,” Champion, 64, said today in an e-mailed reply to queries. “I think it’s a great time for long-term investors to invest in Taiwan.”

Champion expects corporate earnings in Taiwan to increase 75 percent to 80 percent this year.

–Editor: Linus Chua, Reinie Booysen

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

To contact the editor responsible for this story: Linus Chua at lchua@bloomberg.net

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