Are financial stocks becoming the new favorite for funds? Bank stocks offer a 5-7% dividend yield. How can small investors use strategies to steadily profit?

The Taiwan stock market remains oscillating at high levels around 28,000 points. After the gradual slowdown in the rally of Tech Stocks, capital is quietly shifting. Originally, hot money focused on AI chips, but recently it has started flowing into financial stocks. Compared to bank fixed deposits with an annual interest rate of only 2%, switching to bank stocks can reliably earn a 5-7% cash yield, and may also enjoy the dual benefits of share price appreciation. The gap is indeed significant.

So, are financial stocks worth entering now? What are the differences among various types of bank stocks and financial holding companies? This article will delve into the investment logic of financial stocks.

Classification Framework of Financial Stocks: Find the Type That Suits You

Financial stocks refer to shares issued by financial institutions such as banks, insurance companies, and securities firms. Currently, there are about 49 listed financial stocks in Taiwan. Based on business characteristics, they can be divided into the following categories:

Financial Holding Companies (FHC) These have the most diversified operations, usually including subsidiaries such as banks, life insurance, securities, asset management, and financial advisory. Due to their complete industry chain coverage, large asset scale, and stable shareholder structure, they are the most popular choice among retail investors for bank stocks. Well-known Taiwanese examples include Fubon Financial, Cathay Financial, and CTBC Financial.

Pure Bank Stocks Stocks issued directly by banks (e.g., Chang Hwa Bank, Taichung Bank), mainly engaged in deposit and loan services. Their business scope is relatively simple, but their operational stability is usually better than insurance stocks. Suitable for investors seeking long-term holdings with less volatility.

Insurance Stocks Companies engaged in insurance business, with main income from premiums and investment returns. Due to involvement with long-term liabilities and investment risks, their volatility is relatively higher, making them more suitable for entry during economic cycle transitions.

Securities Stocks Primarily earning revenue from brokerage services, with trading volume being a key driver. These stocks tend to perform especially well when market turnover increases and investor trading enthusiasm rises.

Fintech Stocks Focused on digital payments and financial innovation. Although not traditional bank stocks, they are an important part of the financial ecosystem.

Novice investors usually start with financial holding companies because these companies’ bank subsidiaries have diversified business, risk dispersion, and stable dividends (many exceeding 5%). For those seeking even less volatility, pure bank stocks are a good direction. Insurance and securities stocks are more suitable for short-term trading to capture opportunities during market sentiment shifts.

Why Capital Is Flowing Into Financial Stocks

Valuation Differences Are Clear The recent rally in global stock markets has been mainly driven by electronics stocks, especially AI supply chains. However, after the surge, the P/E ratios of tech stocks have climbed above 30, while profit growth has struggled to maintain last year’s explosive momentum. In contrast, large Taiwanese bank stocks typically have P/E ratios around 10-12, far below the 25-30 of tech stocks, making their valuations more attractive. As signs of a soft landing in the economy become clearer, capital naturally shifts toward value stocks with stable profits and high dividend yields.

Interest Rate Environment Is Favorable Although the Federal Reserve has entered a rate-cutting cycle, Taiwan’s financial holding industry has already earned over 560 billion NT dollars in the first half of the year, setting a record high. Market observations suggest that even if the interest rate environment remains relatively low until 2026, as long as the economy does not hard land, the dividend-paying capacity of financial holding companies is likely to sustain or even surpass this year’s level. This implies that bank stock prices still have room for further appreciation.

Economic Defensive Characteristics Banks and insurance companies are closely linked to the overall economy, and their volatility is usually less than that of tech stocks. During the 2022 bear market, the weighted index fell over 20%, but the financial index declined less than 15%. This “attack when possible, defend when necessary” trait is especially valuable in the current high-level oscillating market environment. Tech stocks can drop 10% on a pullback, while bank stocks often only fluctuate 3-5%, making them psychologically easier to hold.

Market Capital Rotation Industry insiders observe that capital is shifting from electronics stocks to defensive industries. Recently, financial holding stocks like Fubon Financial and Cathay Financial have outperformed. If next year’s profits and dividends remain strong, financial stocks should provide stable returns. Even in the event of a slight economic recession, well-performing, well-capitalized financial holding companies with high capital adequacy ratios are more resilient.

Taiwan Financial Stock Investment Map

Based on the latest market data and institutional forecasts, the following five financial holding and bank stocks each have their advantages and are suitable for different investment styles:

Fubon Financial (2881): The comprehensive advantage of a leading financial holding company
As Taiwan’s top financial holding company, Fubon’s insurance subsidiary (Fubon Life) contributes stable profits. 2025 EPS is estimated at 4.5-5 NT, with a P/E ratio around 12, leaving valuation room. The company is actively expanding wealth management and digital banking, plus ongoing brand investments, with long-term growth potential.

Cathay Financial (2882): New growth engine in Southeast Asia
Cathay’s insurance operations in Vietnam, Thailand, and other regions are showing significant growth, with wealth management fee income expected to increase 15% annually in 2025. EPS is forecasted at 4 NT, with a P/E of 11, making valuation attractive. If the interest rate environment stabilizes in 2026, insurance profits could further improve.

CTBC Financial (2891): Pioneer in digital transformation
Leading the digital banking transition, CTBC’s mobile app users are projected to grow 20% in 2025. EPS is estimated at 2.8 NT, with a P/E of 13. Although its exposure to the Chinese market is relatively lower than other financial holdings, a recovery in the economy in 2026 could bring surprises.

E.SUN Financial (2884): The conservative choice
Focused on SME loans and retail banking, E.SUN’s net interest income is expected to grow 10% in 2025. EPS is forecasted at 2.5 NT, with a P/E of 12. Its conservative management style is favored by stability-seeking investors, suitable for long-term planning.

Chang Hwa Bank (2801): An undervalued pure bank opportunity
As a pure bank, Chang Hwa has high capital adequacy and stable loan quality. Wealth management revenue is expected to grow 12% in 2025. EPS is estimated at 1.5 NT, with a P/E of 10, making it the most attractive valuation among bank stocks.

US Financial Stocks: An International Investment Perspective

For investors seeking global exposure, US financial stocks offer another option. Here are some key stocks favored by institutions:

Berkshire Hathaway (BRK.B): Buffett’s investment empire
The world’s most famous investment holding company, owning insurance (GEICO), railroads, energy, manufacturing, and over a hundred subsidiaries. It also holds large stakes in Apple, American Express, and others, with cash holdings reaching $380 billion. Many see it as the most stable defensive stock in US equities.

JPMorgan Chase (JPM): The leader in US banking
The largest US bank, covering retail banking, investment banking, wealth management, credit cards, and more. With over 300,000 employees and a market cap exceeding $800 billion, it’s regarded as the “all-round king” of finance. If capital markets stay active in 2026, profit growth potential is huge.

Bank of America (BAC): The retail financial giant
The second-largest US bank, serving consumers with accounts, mortgages, credit cards, and wealth management. Over 68 million customers, with the largest deposit base in the US. Closely aligned with daily American life, offering relatively high stability.

Goldman Sachs (GS): Wall Street’s investment banking leader
Specializes in M&A, IPOs, stock and bond trading, and high-end financial services for corporations and institutional investors. If the 2026 capital market remains active, it could explode, but with higher volatility—recommend no more than 20% in your portfolio.

American Express (AXP): A barometer of high-end consumer economy
A globally renowned credit card company targeting high-end clients. Revenue mainly from card fees rather than interest. Its strong consumer base makes it less sensitive to economic cycles, with more stable fluctuations than traditional banks.

Sector Trading Strategies for Financial Stocks

Financial stocks are cyclical, with clear cycle characteristics, making them more suitable for swing trading rather than simple fixed deposits.

Three key steps for swing trading:

1. Stock Selection: Prioritize stocks with dividend yields over 5%, P/E ratios below 20, and stable profits. In Taiwan, examples include Fubon Financial, Cathay Financial, E.SUN Financial; in the US, JPM, BAC, etc.

2. Timing: Usually, entering when the market is oscillating at high levels and tech stocks have pulled back is better, as funds tend to rotate into financial stocks. Alternatively, when dividend yields exceed 6-7%, consider gradually building positions.

3. Reducing Positions: When reaching your target price or dividend yield drops below 4% (indicating the stock has appreciated enough), consider trimming or selling entirely, and look for undervalued opportunities elsewhere.

Long-term Investment Value of Financial Stocks

Stable long-term performance
Over the past 30 years, the growth rate of financial industry earnings has significantly outpaced the average economy, enabling these companies to pay dividends higher than the average and maintain stable P/E ratios.

Government support and risk buffers
Financial industries are vital to national economies; governments are unlikely to let major banks fail (as evidenced after the 2008 financial crisis). This results in relatively lower risk and special support during recessions.

Resilience to volatility
Banks and insurance companies are closely tied to the economy, with volatility usually less than tech stocks. Data shows that financial stocks account for 13.12% of the S&P 500 components, and over the long term, they can outperform the broader market.

For investment horizons of 5 years or more, a moderate allocation of quality financial stocks in your portfolio is a good choice. Especially if the US economy avoids a hard landing, many banks have promising prospects. They benefit from higher interest rates—net interest margins (difference between deposit and loan rates) will widen. Although rapid rate changes can cause short-term chaos, in the long run, their assets and liabilities can be adjusted for stronger profit growth.

Risks in Investing in Financial Stocks

Market risk
Financial stocks are sensitive to overall market fluctuations. During bear markets, they tend to fall more sharply. For example, during the 2015 Chinese A-share crash, the Taiwan 50 Index (0050) dropped 24.15%, but Yuanta MSCI Financial (0055) fell 36.34%. Systemic shocks can severely impact the financial sector.

Interest rate risk
Financial stocks are highly sensitive to interest rate changes. Rate hikes benefit earnings and interest spreads, but prolonged low-rate environments pressure profits. Predicting future interest rates is difficult.

Loan risk
Financial institutions face potential bad debt risks. If borrowers default, banks suffer losses. After the Russia-Ukraine conflict erupted in February 2022, Sberbank experienced a bank run, with stock prices plummeting 50% in days, and trading at $0.01 on some overseas exchanges.

Practical Investment Tips for Financial Stocks

Diversification
Avoid concentrating all funds in a single financial stock. Consider low-cost, diversified options like financial ETFs (e.g., 0055 Yuanta Financial, 006288U Financial ETF).

Start small
Begin with as little as NT$10,000, building positions gradually rather than all at once. Adjust holdings step by step according to market conditions.

Regular review
Check quarterly for changes in fundamentals, dividend rates, P/E ratios, etc. If fundamentals deteriorate or valuations become excessive, adjust your strategy promptly.

Combine long-term and swing trading
Participate in short-term fluctuations by trimming at highs and adding at lows, while maintaining a core long-term holding to enjoy steady dividends.

Summary

While financial stocks may lack the explosive growth of tech stocks, their advantages—stable profits, high dividends, resilience, and government backing—make them a vital pillar in mature markets. For investors seeking steady cash flow and share price appreciation, now is an opportune time to consider deploying into financial stocks. Whether Taiwan’s financial holding companies and bank stocks or US giants like JPMorgan and Bank of America, they all deserve a place in your portfolio. The key is to choose suitable stocks based on your risk tolerance and investment horizon, diversify wisely, and hold long-term for steady income.