From technology stocks to financial stocks, what are smart money positioning for?

Taiwan’s stock market index repeatedly fluctuates around 28,000 points. The AI concept remains hot, but market funds are quietly shifting—Bank stocks and financial holding companies are becoming the focus of institutional reevaluation.

Imagine this comparison: a fixed deposit for one year yields only 2%, while financial stocks steadily provide a cash dividend yield of 5-7%, plus potential stock price rebound. The difference is more than double. What market logic does this reflect?

Why are financial stocks shifting from supporting roles to main players?

Valuation discounts emerging

Tech stocks have surged fiercely this round, especially leading AI supply chain companies, with P/E ratios exceeding 30 times, yet profit growth is slowing down. In contrast, large domestic bank stocks generally have P/E ratios around 10-12 times, and US financial giants are only about 15-20 times.

This is not just a numerical difference but a reflection of market pricing power—against the backdrop of a gradually clear soft landing of the economy, funds naturally gravitate toward more reasonable valuations and more stable profits.

Interest rate environment is actually a positive signal for the financial industry

On the surface, the Fed’s rate cut cycle may suppress banks’ net interest income. But reality is more complex: Taiwan’s financial holding companies have earned over 560 billion NT dollars in the first 11 months of this year, setting a record high. Institutions predict that by 2026, as long as the economy does not hard land, the overall dividend payout capacity of financial holding companies is likely to become even stronger—this is the true source of potential stock price rebound.

The inevitable logic of economic rotation

Funds shifting from electronics stocks to defensive stocks is not just about Fubon Financial and Cathay Financial recently performing well. The real logic is: once market rotation starts, financial holding companies with good loan quality and high capital adequacy ratios can demonstrate “attack when possible, defend when necessary” characteristics.

Looking back at the 2022 bear market— the weighted index fell over 20%, but the financial index declined less than 15%. When tech stocks pull back, they often drop 10%, while financial stocks usually only wobble 3-5%. In times of high-level oscillation, this anti-drawdown characteristic is especially valuable.

How to choose financial products? Understanding five major categories

Taiwan’s nearly 50 financial stocks can be categorized into several types, each with different characteristics:

Financial Holding Companies: All-round players with diversified operations

They include banks, life insurance, securities, and asset management businesses, which is why they are most popular— comprehensive services, diversified income, risk dispersion.

Bank Stocks: Traditional, stable, and straightforward

Focus on deposits and loans, relatively monotonous but very stable. Suitable for conservative investors who want to “hold and not move,” with less volatility.

Insurance Stocks: Bright yields but high volatility

Main income from premiums and investment returns. When interest rates change, stock prices also fluctuate significantly, making them suitable for positioning at market turning points.

Securities Stocks: Trading volume determines everything

Brokerage profits are closely related to trading activity in the securities market. When market turnover increases and retail investors chase stocks wildly, securities stocks tend to move first.

Fintech: The new force of digital innovation

Digital payments and fintech companies are changing the financial ecosystem but require higher risk tolerance.

Many novice investors start with financial holding companies (Cathay Financial, Fubon Financial, CTBC Financial are always popular), because of this. For stable dividend income + low volatility, investing directly in financial ETFs (0055, 006288U) is also a good choice— low threshold and automatic diversification.

Five bank stocks and financial holding companies recommendations, how to select suitable targets

Based on recent institutional data, these stocks show distinct characteristics:

Fubon Financial (2881): Leading insurance subsidiary driving growth

Stable contribution from insurance business, rapid growth in wealth management and digital banking, are the main drivers of this wave’s rally. EPS is estimated at 4.5-5 NT dollars, with a P/E ratio of about 12 times. Brand marketing investments and sports event layouts are also enhancing long-term brand value.

Cathay Financial (2882): Southeast Asian insurance as a growth engine

Vietnam and Thailand insurance businesses are growing rapidly, with wealth management fee income increasing 15% annually. EPS is estimated at 4 NT dollars, with a P/E ratio of 11 times. If the interest rate environment stabilizes by 2026, insurance profits still have upside potential.

CTBC Financial (2891): Leading digital transformation among peers

Fast growth in mobile banking users, plus exposure to the Chinese market (relatively limited compared to other financial holding companies but still with potential), EPS is estimated at 2.8 NT dollars, with a P/E ratio of 13 times. Once China’s economy warms up, the stock price may perform beyond expectations.

E.SUN Financial (2884): Expert in SME loans

Steady business, net interest income up 10% annually, EPS estimated at 2.5 NT dollars, with a P/E ratio of 12 times. Conservative management style attracts long-term capital allocation, very suitable for retirement portfolios.

Chang Hwa Bank (2801): The lowest valuation pure bank option

Pure banking model, high capital adequacy ratio, stable loan quality, EPS estimated at 1.5 NT dollars, with a P/E ratio of only 10 times. Wealth management business grew 12%, making it a defensive choice in undervalued territory.

US financial stocks also worth attention

International investors can allocate US financial stocks through cross-trading or financial ETFs. These stocks are highly favored by institutions for 2026:

BRK.B (Berkshire Hathaway): Compound interest machine with holding pattern

Includes hundreds of companies in insurance, railroads, energy, manufacturing. Buffett uses float from insurance income to buy quality companies, exemplifying long-term compound interest. Market calls it “the most stable defensive stock in US equities,” with cash holdings reaching 380 billion USD.

JPM (JPMorgan Chase): Investment banking leader

The largest US bank, covering retail banking, investment banking, wealth management, credit cards, with over 300,000 employees worldwide and a market cap exceeding 8 trillion USD. If capital markets remain active in 2026, profit growth potential is high.

BAC (Bank of America): The representative of the common people’s bank

The second-largest US bank, with over 68 million customers, the largest deposit scale in the US, and business closely related to ordinary people’s lives.

GS (Goldman Sachs): The aristocrat of investment banking

Center of M&A, IPOs, and trading on Wall Street, serving mainly corporate bosses and institutions. If capital markets stay hot in 2026, this stock has the strongest explosive power but also the greatest volatility. It is recommended to keep no more than 20% in the portfolio.

AXP (American Express): The moat of high-end credit cards

Customers have strong spending power, and revenue mainly comes from card transaction fees rather than interest. Relatively stable regardless of economic conditions, with less volatility than traditional banks.

The feasibility of using financial stocks as “alternative to fixed deposits”

Many investors buy financial stocks and rely on dividends as interest income annually. This is indeed feasible, but should be viewed rationally: financial stocks earn significantly more than bank fixed deposits but also carry volatility and risks.

Three core practical steps:

1. Select stocks with golden conditions Look for high dividend yield (at least 5%), low P/E ratio (Taiwan financial holding companies 10-15 times), and stable profits. Fubon Financial, Cathay Financial, E.SUN Financial in Taiwan, and JPM, BAC in the US are common on the list.

2. Timing of entry Best to buy when the market is oscillating at high levels or after a pullback in electronics stocks. During such times, funds tend to rotate into financials. Alternatively, when individual stocks’ dividend yields exceed 6-7%, consider phased accumulation. After buying, just hold and collect dividends— no need to watch the market daily.

3. Rational adjustment logic Set a psychological target price but avoid rigidity— for example, if you set 50 NT dollars but the stock only rises to 45, and the company’s profits improve, then adjust the target to 60. Time is a friend of good companies, especially mature industries like finance. When dividend yield drops below 4% (meaning stock price has risen too much), consider trimming and moving to the next target.

Hidden risks of financial stocks, what you must know

Past performance has not beaten the market

In Taiwan and the US, financial stocks have not outperformed the market in the past decade. During black swan events, they often fall even more deeply— in the 2015 China stock crash, Yuanta Financial (0055) fell 36.34%, far exceeding Taiwan 50’s 24.15%. During financial crises, banks can even face insolvency risks.

Cyclical nature of economic cycle stocks

Financial stocks are cyclical, with strong seasonality. Better suited for swing trading rather than long-term holding. Use technical analysis (moving averages, support/resistance, RSI, etc.) to find profit opportunities during bull-bear transitions.

Interest rate risk and loan default risk

Rising or falling interest rates affect financial performance, and are hard to predict accurately. Also, if invested companies cannot repay debts, banks face non-performing loan risks. These factors contribute to volatility.

Rational evaluation of financial stocks

Financial stocks lack the explosive power of tech stocks but account for 13% of the S&P 500 and hold a stable position in mature markets. Long-term, they have the potential to outperform the market because:

• Over the past 30 years, the earnings growth of the financial industry has been significantly faster than the overall economy
• Strict regulation and government support (examples include bailout after the 2008 financial crisis), making financial stocks less risky than typical industries
• Banks and insurance are deeply linked to economic cycles, with generally smaller fluctuations than tech stocks

Conclusion: Financial stocks are best as a stable foundation in an investment portfolio, combined with swing trading strategies to enhance returns. Don’t expect them to double, but don’t underestimate their defensive and dividend value. Especially in today’s high-level oscillation and overvalued tech stocks, allocating a few quality financial stocks is a smart way to reduce risk and achieve steady growth.