Are funds quietly withdrawing from Tech Stocks? The counterattack of financial stocks is coming.

The Taiwan stock market is oscillating around 28,000 points. Although electronics stocks are riding the AI wave, keen market observers have noticed an interesting phenomenon—large amounts of capital are quietly flowing into the long-neglected financial sector. The logic behind this is simple: fixed deposits offer only 2% returns, but switching to financial stocks can steadily yield 5-7% dividends, with the added chance of benefiting from stock price rebounds. This shift in conditions has suddenly turned what was once considered “boring stocks” into market focal points.

Why Are Financial Stocks Gaining Attention as Tech Stocks Slow Down?

Valuation Gap Widens, Rotation Becomes Inevitable

The global rally has been led by Tech Stocks, especially AI supply chains, but the gains have already been impressive. Major tech companies often have P/E ratios over 25-30 times, yet their annual profit growth is hard to replicate at last year’s explosive levels. In contrast, large banks in the financial sector typically trade at P/E ratios of 10-12 times, making them much cheaper. As the economy gradually soft-lands, capital is shifting toward value stocks with stable profits and attractive dividends.

Interest Rate Environment Has Not Deteriorated as Expected

Although the Federal Reserve has entered a rate-cutting cycle, which might seem to reduce net interest income for financial institutions, the reality is less pessimistic. Major Taiwanese financial holdings have already surpassed NT$560 billion in profits by November, setting a record high. Even if the interest rate environment remains low through 2026, as long as the economy avoids a hard landing, the overall dividend-paying capacity of financial holdings is likely to be stronger than this year, providing room for stock prices to rebound.

Volatility Offers a Safety Margin

Looking back at the 2022 bear market makes this clear. The weighted index plunged over 20%, but the financial index fell less than 15%. This “attack when possible, defend when necessary” trait is especially valuable in the current high-level oscillation environment—tech stocks might drop 10% with a slight correction, while financial stocks often only fluctuate 3-5%, making the psychological burden much lighter.

Currently, the market shows clear signals of a “value stock revival.” As global asset rotation progresses, the momentum of the Magnificent 7 tech giants is slowing, and funds are naturally flowing into undervalued, dividend-rich financial stocks. These stocks generally have P/E ratios between 15-20 times, with steady dividends, providing a buffer during market volatility.

Of course, financial stocks are not without risks. If, by 2026, the Fed cuts rates fewer times than expected, or if economic slowdown and international trade tensions intensify, loan default rates could rise, increasing volatility. Therefore, diversification is wise—avoid impulsively betting everything on a single stock.

How to Classify Financial Stocks? Where Should Beginners Start?

Financial stocks include listed companies in banking, insurance, securities, and related fields. In Taiwan, out of over 1,000 stocks, about 49 are classified as financial stocks.

Holding Companies—Most Popular Choice

Financial holding companies operate across multiple sectors, including banks, life insurance, securities, asset management, and advisory services. Their diversified operations, large asset bases, and stable shareholder structures make them highly attractive to investors. Beginners often start with holding companies like Cathay Financial, Fubon Financial, and CTBC Financial, which frequently appear in investment discussions.

Bank Stocks—Greater Stability

Bank stocks are issued by banks themselves, such as Chang Hwa Bank and Taichung Bank. Their core business is straightforward—deposits and loans—making their operations relatively simple. This simplicity translates into stability, with less dramatic fluctuations. Suitable for investors seeking steady holdings without large swings.

Insurance Stocks—Distinct Cyclical Characteristics

Insurance companies earn income from premiums and investment returns, with more pronounced volatility than banks and securities firms. They are highly sensitive to interest rate changes—rising or falling rates often lead to noticeable stock price reactions. Best suited for strategic positioning at market turning points.

Securities Stocks—Trading Volume Determines Performance

Securities firms mainly earn from brokerage services, and their profitability is directly affected by market trading volume. When markets are hot, brokerage profits are robust; when markets cool, earnings decline. These stocks are ideal for positioning during periods of increased trading activity and investor enthusiasm.

Fintech Stocks—Emerging Sector

Companies focused on digital payments and fintech innovation, such as PayPal, Mastercard, and Square in the US, represent newer investment options.

If capital is limited, consider starting with financial ETFs (like 0055 Yuanta Financial, 006288U Financial ETF), which have low entry barriers and diversified risks. For more flexible short-term adjustments, swing trading can also be a good approach.

How to Pick Taiwanese Financial Stocks for 2025? Five Stocks to Watch

Based on latest data and institutional forecasts, the following five stocks cover different business advantages and suit various investor types:

Fubon Financial (2881): The All-Round Performance of a Leading Insurance Group

Taiwan’s top financial holding, with Fubon Life Insurance contributing stable profits. 2025 EPS is estimated at NT$4.5-5, with a P/E ratio around 12, still attractive. The group is actively sponsoring sports events and branding campaigns, with long-term brand value potential. Be aware that geopolitical risks in overseas markets (Hong Kong, Southeast Asia) could impact profits.

Cathay Financial (2882): Southeast Asian Insurance Boom

Strong performance in Vietnam, Thailand, and other Southeast Asian markets. 2025 fee income from wealth management is projected to grow 15% annually. EPS is estimated at NT$4, with a P/E of 11, making valuation attractive. If interest rates stay stable in 2026, profits could further improve. Risks include sensitivity to interest rate changes—rapid rate cuts could squeeze investment yields.

CTBC Financial (2891): Leader in Digital Transformation

Leading digital transformation, with mobile banking users expected to grow 20% in 2025, demonstrating strong customer appeal. Exposure to China (less than other holdings but still present) offers growth potential. EPS is estimated at NT$2.8, with a P/E of 13. Growth prospects are clear; if China’s economy recovers in 2026, stock prices could surprise. Caution is advised regarding policy uncertainties in China.

E.SUN Financial (2884): Stable Mid-Tier Power

Focusing on SME loans and retail banking, with 10% annual growth in net interest income. Conservative management style appeals to risk-averse investors. EPS is estimated at NT$2.5, with a P/E of 12. It’s a good long-term hold. Risks include reliance on Taiwan’s domestic economy, which could slow growth during downturns.

Chang Hwa Bank (2801): Pure Bank Value Fortress

Pure bank stock with high capital adequacy and stable loan quality. 2025 wealth management growth is projected at 12%, EPS NT$1.5, P/E 10, making it one of the cheapest options. The downside is its simple business model with less growth potential compared to diversified financial holdings.

US Financial Stocks: The Heart of Global Capital Markets

US financial stocks hold a pivotal position globally. They account for 13.12% of the S&P 500. Key stocks that institutional investors focus on in 2026 include:

Berkshire Hathaway (BRK.B): Buffett’s Investment Empire

The world’s most famous investment conglomerate, led by Warren Buffett. Owns over a hundred companies across insurance (GEICO), railroads, energy, manufacturing, and holds large positions in Apple, AmEx, and others. Essentially a super-investment fund—using insurance cash flows to buy good companies and earn compound returns long-term. Many investors see it as “America’s most stable defensive fortress.”

JPMorgan Chase (JPM): The All-Round Financial Powerhouse

The largest US bank, with operations spanning retail banking, investment banking, wealth management, and credit cards. Over 300,000 employees, market cap over $800 billion. If capital markets stay active in 2026, profit growth potential is high, with reasonable valuation.

Bank of America (BAC): The People’s Bank

Second-largest US bank, focusing on everyday banking needs—accounts, mortgages, credit cards, wealth management. Over 68 million customers, the largest deposit base in the US, closely tied to Americans’ daily lives. Many people deposit their salaries here.

Goldman Sachs (GS): Wall Street’s Investment Banking Elite

Famous for M&A, IPOs, and bond trading, serving large corporations and institutional investors. Less accessible to retail investors, but highly profitable. If capital markets remain active in 2026, it could outperform strongly, but with higher volatility. Limit exposure to no more than 20% of your portfolio and choose entry points carefully.

American Express (AXP): Premium Consumer Advantage

Global leader in high-end credit cards, mainly serving wealthy clients. Revenue mainly from card fees rather than interest, making it less volatile than traditional banks. Its affluent customer base tends to be resilient during economic downturns.

How to Use Financial Stocks as Fixed Income? Smart Strategies

Many investors buy financial stocks and treat them like “fixed deposits,” relying on dividends for income. This approach is feasible but should not treat financial stocks as risk-free assets. They offer higher returns than bank deposits but also carry volatility and risks.

Practical Allocation Ideas

For passive income seekers, starting with financial ETFs (like 0055) or stable financial holdings as high-yield fixed income is practical. Core criteria include:

• High dividend yield (at least 5%)
• Relatively low P/E ratios (Taiwanese holdings 10-15x, US stocks 15-20x)
• Steady profitability

Examples include Fubon Financial, Cathay Financial, E.SUN (Taiwan), and JPMorgan Chase, Bank of America (US)—all suitable for long-term holding.

Timing the Entry

Best to buy during high oscillation periods when tech stocks have pulled back, as capital rotates. Alternatively, when dividend yields exceed 6-7%, consider phased entries. After purchasing, hold and collect dividends as interest. Set target prices but remain flexible—for example, if your initial target was NT$50 but the stock rises to NT$45 with improved fundamentals, raise your target to NT$60. Time is an ally for quality companies, especially in mature industries like finance.

When to Reduce or Exit

When your psychological target price is reached, or dividend yield drops below 4% (indicating stock price has risen enough), consider trimming or selling and moving to undervalued opportunities. Over the years, most returns come from dividends and price rebounds, so daily monitoring isn’t necessary.

Financial Stocks Seem Stable, But Risks Must Not Be Ignored

Historical Performance Truth

In both Taiwan and the US, financial stocks have not outperformed the broader market over the past decade. During black swan events, they often fall more sharply. For example, during the 2015 Chinese A-share crash, Taiwan’s 50 Index (0050) dropped 24.15%, while Yuanta MSCI Financial (0055) fell 36.34%. During crises, banks can even face insolvency—after the Russia-Ukraine conflict in 2022, Sberbank experienced a bank run, with stock plunging 50% in days, and trading was halted at times below $0.01.

Three Major Risks

Market risk: Financial stocks are highly sensitive to market swings. Bear markets often see deeper declines, and systemic risks during black swan events hit financials hardest.

Interest rate risk: Rising or falling rates impact performance. While higher rates can benefit banks’ net interest margins, the prolonged low-rate environment has suppressed profits, making rate predictions difficult.

Loan default risk: Banks inherently face credit risk. If borrowers default, banks face bad debts and losses.

Swing Trading May Be More Suitable

Financial stocks are cyclical, with pronounced seasonality. Compared to long-term fixed income, swing trading aligns better with their nature. Using technical analysis (moving averages, support/resistance, RSI), traders can profit from bull and bear phases, gaining more flexibility.

The Long-Term Value of Financial Stocks Should Not Be Underestimated

Financial stocks have long been pillars of the stock market. They account for 13.12% of the S&P 500. While often labeled as “boring and conservative,” many financial stocks, due to low volatility, steady dividends, and solid management, can outperform the market over the long run.

Why Are Financial Stocks Worth Holding Long-Term?

Stable long-term profits: Over the past 30 years, financial sector earnings have grown faster than the overall economy, enabling consistent high dividends and stable P/E ratios.

Government-backed safety margin: As they are tied to the global economy, governments tend to prevent major banks from failing (post-2008 bailouts are prime examples). Risks are lower than other sectors, and during recessions or crises, they often receive special policy support.

Defensive characteristics: Banking and insurance are closely linked to the economy, with smaller fluctuations than tech stocks, making them good safe havens.

Although many factors influence financial stocks short-term, allocating some high-performing financial stocks into your portfolio for periods exceeding five years is a wise move.

If the US economy avoids recession, many banks should have promising prospects—benefiting from higher interest rates that widen the net interest margin. Although rapid rate changes can cause short-term chaos, banks’ balance sheets can adjust over time, preparing for stronger profit growth.

Summary: How to Strategically Allocate Financial Stocks?

While lacking the explosive growth of tech stocks, financial stocks hold an important position in global markets and have long-term potential to outperform. For Taiwanese investors interested in US or Taiwan financial stocks, now is a good time—valuation is reasonable, dividends are stable, and growth momentum persists.

The key is to clarify your investment goals: for stable income, choose large, dividend-stable holdings like Fubon or Cathay; for higher growth, consider more dynamic stocks; if capital is limited, financial ETFs are good risk-diversification tools. Most importantly, diversify your assets and avoid putting all your wealth into a single stock. The long-term value of financial stocks is significant—by being cautious, managing risks, and patiently collecting dividends and capital gains, you can steadily earn income and enjoy surprises from stock rebounds.