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Comment (The blue-chip Hang Seng Index reached 19,725.73, adding 405 points in a single day.
Hong Kong-listed mainland companies also hit a record high, with profitable State-owned enterprises seen to be the biggest beneficiaries of the upcoming tax policy.
The index of Hong Kong-listed mainland companies, known as the H-share index, hit a five-year high when it closed at 10,258.31 yesterday, up nearly 7 per cent.
The day's turnover in H-share companies topped HK$28 billion (US$3.6 billion), soaring 19 per cent compared with last Friday's HK$23.6 billion (US$3.6 billion).
The mainland's tax authorities plan to abandon preferential treatment designed to attract foreign investors and set a unified corporate income tax rate of 25 per cent, which will significantly cut costs for local firms currently paying up to 33 per cent in income tax.
The unified tax policy came earlier than expected, which is good news, especially for big and profitable State-owned enterprises, as their income base is higher, and they will enjoy larger cost reductions, said an stock analyst who wished to remain anonymous.
He expected the blue chip index to climb further to a 300-point-range around 19,600 through January 2007.
Along with the looming issue of 3G licences, the new tax policy is also serving to boost telecom stocks.
Shares in China Netcom, the most active stock yesterday, gained HK$5.99 (77 US cents) and closed at HK$25.45 (US$3.3) after reaching a record of HK$26 (US$3.37).
Encouraged by the new policy, China Netcom's home rival China Unicom rose nearly 8 per cent to HK$11.4 (US$1.48).
Mainland financial stocks are also promised as winners in the possible new tax system with China Construction Bank rising 9.52 per cent to HK$5.06 (65 US cents) and Bank of China soared 4.62 per cent to HK$4.08 (52 US cents).
Industrial and Commercial Bank of China shares jumped as much as 13 per cent, helped by an announcement that the non-performing loans of the country's top lender will be less than 3.9 per cent of its total loans at the end of this year.
The new tax policy has also helped oil-related mainland stocks rise significantly.
Petrochina was up more than 5 per cent to HK$10.9 (US$1.4) after hitting a record of HK$10.98 (US$1.42), also encouraged by hopes that the company would float its shares on the mainland stock market as early as next year.
Sinopec stocks gained 3.72 per cent to almost HK$7 (89 US cents).
The Asia's top oil refiner also said yesterday that it had received 5 billion yuan (US$639.4million) in compensation from the central government for reining in losses this year.
