Recently, I’ve noticed an interesting phenomenon: funds are quietly flowing from electronic stocks into another undervalued sector. The Taiwan stock market’s benchmark index is roiling and ranging around 28,000 points at high levels. Many people are still chasing AI concepts, but smart money has already started building positions in financial stocks. Do you know what financial stocks are? Simply put, they are stocks of companies such as banks, insurance, and securities firms—but this is no longer just “old people’s stocks.” They have instead become favorites among value investors.

What I’ve observed is that placing money into a 1-year fixed deposit yields only 2%, whereas financial stocks can reliably provide a cash dividend yield of 5% to 7%, and there’s also the possibility of waiting for the share price to rebound. The difference is truly astonishing. More importantly, what kind of investment vehicle are financial stocks? They have characteristics of both being able to press the attack and defend. When tech stocks fall back, they often drop 10%, but financial stocks often just move around 3% to 5%, making the psychological burden much lighter.

Why is it especially worth paying attention to now? First is valuation. The driving force in global stock markets this time is almost entirely electronics—especially the AI supply chain. But after the rally has run for a while, P/E ratios have climbed to above 30x, while it’s difficult for earnings growth to sustain the explosive momentum seen last year. By contrast, large bank stocks’ P/E ratios are mostly still in the range of 10 to 12 times, making their valuations relatively much more reasonable. Second is the interest rate environment. Although the Fed has entered a rate-cutting cycle, Taiwan’s financial holding companies have already earned more than 560 billion in NT dollars in the first 11 months of this year, setting a new high. I believe that in 2026, even if the interest-rate environment is relatively low, as long as the economy doesn’t hard land, the overall dividend distribution capacity of financial holding companies is likely to be stronger than last year.

How are financial stocks classified? There are mainly five types. Financial holding company businesses are the most diverse, with subsidiaries that include banks, life insurance, securities, asset management, and more—such as Cathay Financial, Fubon Financial, and CTBC Financial, which are always popular. Pure bank stocks are suitable for those who want to hold steadily, with the smallest volatility. Insurance and securities tend to be more volatile and are suitable for positioning when market trends shift. There are also fintech stocks focused on digital payment innovations.

My own approach to positioning is like this: choose targets with high dividend yields of at least 5%, low P/E ratios, and stable earnings. In Taiwan, I like Fubon Financial. Its insurance subsidiaries contribute steadily, its wealth management growth is fast, and its estimated P/E ratio is about 12x. Cathay Financial’s Southeast Asia insurance business is growing significantly; its fee income is up 15% year over year, and its 11x P/E valuation is attractive. E.SUN Financial mainly focuses on small- and medium-sized enterprise lending and retail banking, with a conservative management style; its net interest income is growing 10% year over year, making it very suitable for long-term holding. Chang Hwa Bank is a pure bank stock with a high capital adequacy ratio and stable loan quality—so it is one of the lowest-valuation options.

U.S. financial stocks are also worth watching. JPMorgan is the largest bank in the United States, with business spanning retail banking, investment banking, and wealth management. If the capital markets remain hot in 2026, it has strong potential for profit growth. Bank of America focuses on mainstream retail banking for ordinary consumers, with more than 68 million customers and the largest deposit base in the U.S. Goldman Sachs is the best-known investment bank on Wall Street. If you think the capital markets will stay hot in 2026, this one has the strongest upside potential—but it also comes with higher volatility. American Express targets high-end customers, with stable credit card fee income and strong customer spending power. Berkshire Hathaway—Warren Buffett’s conglomerate—owns hundreds of companies including insurance, railroads, and energy, and many people call it the most stable defensive stock in the U.S.

If your capital is small, you can start with financial ETFs. The entry threshold is low and you get diversification. If you want to collect passive income over the long term, starting with a few steady financial holding names, then treating them like high-yield fixed deposits, is absolutely feasible. I usually enter when the broader market is trading in a high-level range and when electronics stocks have risen a lot and then pull back, because funds can easily rotate into financials at that time. Or, when an individual stock’s dividend yield stands above 6% to 7%, I buy in batches. After buying, I simply hold, collecting the dividends as “interest” each year. When the dividend yield drops below 4%, it means the stock price has risen too much, and then I consider trimming or selling everything.

Of course, financial stocks are not a perfect substitute for fixed deposits. They can earn considerably more than bank fixed deposits, but they also come with volatility and risks. Financial stocks are easy to be affected by market fluctuations; during bear markets, their declines are often deeper. Changes in interest rates also affect them: rate hikes help bank interest margins, but rate cuts that happen too quickly can suppress investment returns. There is also the risk of loan defaults—if the companies you invest in are unable to repay their debts, banks face bad-debt risk. Moreover, financial stocks are cyclical, with strong seasonality, making them more suitable for swing trading rather than “dead holding.”

But in the long run, as large-cap stocks in mature markets, financial stocks account for as much as 13% of the S&P 500. Although they lack the explosive growth potential of tech stocks, they still have the potential to outperform the broader market over the long term. So what kind of long-term investment are financial stocks? They offer relatively stable performance, opportunities for government support under strict regulation, and defensive qualities during economic downturns. Over the past 30 years, the financial industry’s earnings growth has been clearly faster than the overall economy, enabling it to pay dividends to shareholders at above-average levels. Governments won’t easily let major banks fail, which makes financial stocks less risky than most other industries.

In summary, the market currently shows signs of a value-stock rebound. Global equities have entered a rotation phase. After the momentum of tech stocks—especially the Magnificent 7—starts to cool off, funds naturally flow into financial stocks with lower valuations and higher yields. If you want to position in financial stocks, now is a good time. Valuations are relatively reasonable, with steady dividend payouts and growth potential. Of course, diversification is still recommended—don’t put all your money into a single basket.