HONG KONG -- Viewed as the candidate with the most hostile attitude toward China,

Chen Shui-bian

is gaining fast in Saturday's presidential elections. Analysts have been saying that if elected, stocks in Taiwan could plunge in the short term.

If so, that would probably translate into some decent buying opportunities among Taiwan's well-known electronics stocks. Longer term, though, the first-ever defeat for the ruling

Nationalist Party

, more commonly known as the

Kuomintang

(KMT), would promise a vast broadening of the kinds of stocks that would appeal to foreign investors.

Taiwan -- the successful Asian Tiger that it is -- is really two economies in one: an old, corrupt economic system of traditional industry, replete with cronyism and state control, and a new, lean one that competes in electronics with the best in the world, and wins.

A Chen victory could trigger the unraveling of the KMT's massive business empire, worth $20 billion or more. Companies owned by important party people that now resist bankruptcy would be free to go bust, their not-so-favored competitors poised to grab market share. (For more on the election, see

David Kurapka's

Global Portfolio.)

That would be a welcome change. "The ruling KMT continues to have investments in more than 100 companies and also is a major influence in the banking industry, making it very difficult to distinguish where politics ends and commercial interests begin," says Hong Kong's independent

Political and Economic Risk Consultancy

. In addition, it says, the government has used its influence in recent years "to paper over the financial problems of many KMT-linked companies."

"In reality, there are no campaign spending limits in Taiwan. Power leads to money, which leads to more power," says a disgusted academic who asked to remain anonymous.

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Would a Chen win bring an end to this? Not immediately, given the fact that the KMT still controls the legislature. But if the KMT loses the presidency for the first time, you can be sure that the comfy bosses at KMT-linked companies would be in for some sleepless nights.

An investment in Taiwan today usually means investment in electronics hardware. Take a look at any of the most successful mutual funds investing in Taiwan, and you'll find them heavily weighted with chipmakers, laptop makers and manufacturers of hundreds of components that probably went into the computer you are using this minute.

The tilt toward tech in Taiwan is inescapable, but some skilled fund managers could easily shift to Old Economy stocks if given the chance of buying into professional management.

Retail investors can invest in stocks across Asia through the

(ASDYX)

Van Eck Asia Dynasty Fund, but studying this fund offers a shortcut on taking advantage of buying opportunities in Taiwan. The fund's largest single holding recently was the

NYSE

-listed closed-end

(ROC)

ROC Taiwan fund. Unsurprisingly, almost 60% of the ROC Fund's investments were in computers, office equipment, electronics and semiconductors.

Although Taiwan is a rich country with among the highest foreign exchange reserves per capita in the world, just 9.2% of the fund's stocks are in the banking sector. Old Economy sectors such as paper, steel, transport and cement brought up the rear.

Fidelity's

offshore Taiwan fund is similar, with 58% invested in the non-KMT capital equipment sector, and just 18% in finance. Services, in such a wealthy and advanced economy, merit just 2.8% of the fund's investment.

Even if the KMT remained a passive investor in some of its holdings after a Chen win, the prospect of a new ruling party in Taiwan makes for the exciting prospect "of stamping down on corruption and making the bureaucracy more transparent. Generally a cleanup," says Mark Edwards, who manages the

(PRASX) - Get Report

T. Rowe Price New Asia fund and is overweight Taiwan stocks -- most of them (for now) tech issues.