Can financial stocks outperform fixed deposits? Small investors can start with 10,000 yuan, combining dividend income and price recovery for a dual approach.

The Taiwan stock market is oscillating at high levels, with hidden capital flows surging. Have you noticed that many people are quietly withdrawing from tech stocks and turning to financial stocks? The reason is simple: a one-year fixed deposit yields only 2%, but switching to financial stocks can provide a stable cash dividend yield of 5-7%, with the possibility of share price rebound. Who benefits from this calculation? Everyone.

This article will help you understand the investment logic behind financial stocks, detail high-quality targets in Taiwan and the US, and show how to allocate a few thousand dollars to both earn steady dividends and seize rebound opportunities.

Why is capital shifting to defensive stocks, and why are financial stocks particularly attractive now?

Valuation attractiveness cannot be ignored

Electronics stocks, especially AI supply chain companies, have surged dramatically, but their P/E ratios are generally over 25-30 times. Profit growth is not keeping pace with stock price increases, raising concerns about sustainability. In contrast, large bank stocks mostly have P/E ratios between 10-15 times, making them much cheaper. With a soft landing in the economy imminent, capital is seeking stable, dividend-paying value stocks, and financial stocks fit this profile perfectly.

Interest rate environment provides support for the financial sector

Although the Federal Reserve is entering a rate-cut cycle, this is not as bad for financials as you might think. In Taiwan, financial holding companies have already earned over 560 billion NT dollars by November this year, setting a record high. Even if interest rates remain low until 2026, as long as the economy avoids recession, the overall dividend capacity of financial holdings is likely to be stronger than this year—providing the foundation for share price rebound.

Market rotation becomes evident, and defensive attributes stand out

Defense-oriented financial stocks like Fubon Financial and Cathay Financial have performed well recently. If next year the economy experiences a mild recession, financial holdings with good loan quality and high capital adequacy ratios will be least affected. Looking at the 2022 bear market, the Taiwan Weighted Index fell over 20%, but the financial index declined less than 15%, demonstrating strong resilience. Tech stocks often drop 10% on a pullback, while financial stocks typically only fluctuate 3-5%, making them psychologically easier to hold.

The "attack when possible, defend when necessary" characteristic is especially valuable in high-level oscillation environments. As global markets enter a rotation phase, after the slowdown of the Magnificent 7 tech giants, capital naturally flows into financial stocks with lower valuations and higher yields. With P/E ratios mostly between 15-20 times and stable dividends, they serve as a strong buffer during market volatility.

How are Taiwanese financial stocks classified? Who are they suitable for?

Holding companies: the most popular starting point

Financial holding companies encompass banks, life insurance, securities, fund management, and advisory services. They are diversified, risk-spreading, and most offer dividend yields over 5%. Fubon Financial, Cathay Financial, and CTBC Financial are perennial favorites. Beginners often start here because of stability.

Pure bank stocks: for those seeking stability

Bank stocks (e.g., Chang Hwa Bank, Taichung Bank) have simpler operations but are relatively stable. They experience less volatility than holding companies and are suitable for investors who want to hold long-term without frequent trading.

Insurance and securities stocks: timing is key

Insurance stocks are sensitive to interest rates, while securities stocks are heavily influenced by trading volume. Both tend to be more volatile, but when market trends shift—such as increased trading volume or significant interest rate changes—they often move first and profit first. They are not suitable for beginners to jump into immediately.

What if you have limited funds? Starting with financial stock ETFs (like 0055 Yuanta Financial, 006288U Financial ETF) is the most cost-effective, with low thresholds and good diversification. For short-term flexible adjustments, derivatives like CFDs with lower fees are also an option.

Selected list of Taiwanese financial stocks for 2026

Based on latest forecasts and institutional research, here are five stocks with different strengths, suitable for various investment styles:

Fubon Financial (2881): Market leader with strong brand value

Subsidiaries like Fubon Life contribute steadily, with rapid growth in wealth management and digital banking. 2025 EPS is estimated at 4.5-5 NT dollars, with a P/E ratio around 12, leaving room for valuation. Active branding and sports sponsorships support long-term growth potential.

Risks: Overseas expansion in Hong Kong and Southeast Asia may face geopolitical risks, potentially impacting profits.

Cathay Financial (2882): Southeast Asian insurance as new growth driver

Vietnam and Thailand insurance markets are growing rapidly, with wealth management fee income increasing 15% annually. EPS is estimated at 4 NT dollars, with a P/E of 11, which is attractive. If interest rates stabilize in 2026, insurance profits could further rise.

Risks: Insurance stocks are sensitive to interest rate changes; rapid rate cuts could lower investment yields.

CTBC Financial (2891): Leader in digital transformation

Mobile banking users are projected to grow 20% in 2025, with exposure to the Chinese market (less than other holdings but still promising). EPS is estimated at 2.8 NT dollars, with a P/E of 13, offering growth potential. If China’s economy recovers, there could be surprises.

Risks: High uncertainty in Chinese policies may slow related business development.

E.SUN Financial (2884): Stable style attracting long-term investors

Steady SME loans and retail banking generate a net interest income growth of 10% annually. EPS is estimated at 2.5 NT dollars, with a P/E of 12. Conservative management appeals to value investors, suitable for buy-and-hold.

Risks: Mainly focused on Taiwan; domestic economic slowdown could dampen growth.

Chang Hwa Bank (2801): The cheapest pure bank stock

High capital adequacy ratio, stable loan quality, and 12% growth in wealth management. EPS is estimated at 1.5 NT dollars, with a P/E of 10, making it the most undervalued among peers. Suitable for risk-averse investors seeking defense.

Risks: Single business focus; growth potential is less than diversified financial holding companies.

Are US financial stocks also worth investing?

Taiwanese investors looking to enter US stocks financial sector now have a good opportunity. Major institutions favor the following five, covering diversified banks, investment banks, and insurance giants:

BRK.B (Berkshire Hathaway): The safest defensive choice

A globally renowned investment holding company with subsidiaries in insurance (GEICO), railroads, energy, and more, holding large positions in Apple, American Express, etc. Expected growth of about 25-30% in 2025. Essentially, it’s like a super-large investment fund that uses insurance income to compound investments in good companies. Many call it “the most stable defensive stock in US stocks.”

JPM (JPMorgan Chase): The versatile banking giant

The largest US bank, covering retail, investment banking, wealth management, credit cards. Over 300,000 employees worldwide, market cap over $800 billion. Estimated 2025 growth of 30-35%. If capital markets stay active in 2026, profit growth potential is high, with reasonable valuation.

BAC (Bank of America): Retail banking for the masses

The second-largest US bank, focusing on retail customers—accounts, mortgages, credit cards, wealth management. Over 68 million customers, the largest deposit base in the US. Estimated 2025 growth of over 35%, closely aligned with everyday American life.

GS (Goldman Sachs): Investment banking aristocrat

The most famous investment bank on Wall Street, with strengths in M&A, IPOs, trading. Estimated 2025 growth of 25-30%. If you believe in continued strength of capital markets in 2026, this stock has explosive potential—but also higher volatility. Recommended to keep within 20% of your portfolio.

AXP (American Express): The high-end client’s money machine

A globally renowned credit card company targeting high-net-worth clients, earning mainly from card fees rather than interest. Customers are high-spenders with strong payment willingness, relatively stable regardless of economic cycles, with less volatility than traditional banks. Estimated 2025 growth of 20-25%.

Can financial stocks serve as a "replacement for fixed deposits"?

Many investors buy financial stocks and hold them passively, relying on dividends as a form of living interest. This is feasible, but financial stocks are not perfect substitutes for fixed deposits. Their returns are indeed much higher than bank deposits but come with market fluctuations and risks.

Practical investment strategies

Stock selection criteria are crucial: prioritize stocks with dividend yields over 5%, low P/E ratios (Taiwanese holdings 10-15 times, US financials 15-20 times), and stable profits. Fubon, Cathay, E.SUN, JPM, BAC all meet these standards.

Timing is also key. The best entry points are during high-level oscillations in the market or after tech stocks have surged and pulled back, as capital tends to rotate into financial stocks. Alternatively, when a single stock’s dividend yield exceeds 6-7%, consider phased accumulation.

Post-purchase management: don’t rigidly stick to the initial target price. Instead, adjust based on company fundamentals. When your psychological target price is reached or dividend yield drops below 4% (indicating stock price has risen too much and attractiveness has waned), consider trimming or exiting, then move funds into undervalued targets.

Limitations of financial stocks

However, don’t forget that over the past decade, financial stocks have not outperformed the broader market. For example, during China’s A-share crash in 2015, Yuanta MSCI Financial (0055) fell 36.34%, far worse than Taiwan 50’s 24.15%. During financial crises, banks also face the risk of failure; after the Russia-Ukraine war in 2022, Sberbank’s stock plummeted 50% in days due to bank runs. This reminds us that financial stocks are not risk-free assets.

Swing trading: another way to play financial stocks

Financial stocks are cyclical, with strong seasonality. Compared to long-term holding, swing trading may be more suitable. Using technical analysis (moving averages, support/resistance, RSI, etc.), traders can profit from price swings in bull and bear markets, with greater flexibility.

A simple three-step approach: first, register an account and fill in basic info; second, choose a deposit method (many options, with thresholds as low as $50); third, seize trading opportunities anytime, anywhere.

The long-term investment value of financial stocks remains

Financial stocks account for as much as 13.12% of the S&P 500. Although known for conservative, low-growth characteristics, their low volatility, stable dividends, and recession resistance give them long-term potential to outperform the market.

Three core advantages:

Over the past 30 years, the financial sector’s earnings growth has outpaced the overall economy, enabling financial companies to pay higher-than-average dividends, creating stable P/E ratios.

Strict regulation and government support during economic crises reduce risks relative to other industries. Remember the bank bailouts after the 2008 crisis? Governments are unlikely to let big banks fail easily.

Banks and insurance are deeply linked to the overall economy; their volatility is usually lower than tech stocks, providing a defensive feature.

Future outlook

If the US avoids recession, the outlook for banks is bright. Generally, higher interest rates benefit banks through wider net interest margins. Although rapid rate changes may cause short-term chaos, over time, banks can adjust their assets and liabilities to achieve stronger profit growth.

Key risks in investing in financial stocks

Market systemic risk

In a bear market, financial stocks tend to fall more sharply. During black swan events, the entire financial sector may face systemic shocks.

Interest rate risk

Rising or falling interest rates directly impact financial profits. While high rates expand net interest margins, falling rates do the opposite. It’s difficult for investors to accurately predict rate movements.

Loan default risk

Non-performing loans and bad debts are perpetual concerns. If borrowers default, banks suffer direct losses.

Recommended approach

To invest in financial stocks, diversify your portfolio. Avoid putting all your eggs in one basket or focusing on a single category; risk spreading is smarter.

Conclusion

Financial stocks may lack the explosive growth of tech stocks, but as a vital pillar of mature markets (accounting for 13% of the S&P 500), they still have long-term potential to outperform the market. For Taiwanese investors, now is a good time to allocate to US financial stocks—valuation is reasonable, dividends are stable, and growth momentum remains.

Starting with just NT$10,000, through phased deployment or financial stock ETFs, you can earn steady dividends and still have upside potential from share price rebounds. Remember: time is a friend to good companies. For mature industries like financial stocks, the longer you hold, the greater the advantage.