Recently, I discovered a pretty interesting phenomenon—Taiwan’s main stock index is fluctuating at high levels around 28,000 points, while a lot of money quietly rotates from electronic stocks that have been surging to “hot” financial stocks. I’m also paying attention to this rotation, because the difference is really big.

Imagine this: putting your money in a bank fixed deposit for a year only earns 2%. But if you switch to financial stocks, you can reliably earn a 5–7% cash dividend yield, and there’s also the possibility of waiting for the stock price to catch up and rebound. That’s why more and more people have started to take financial stocks seriously lately.

From a valuation perspective, electronic stocks—especially those related to AI—have already risen to a P/E ratio of more than 30 times, but profit growth is difficult to sustain at the explosive level seen last year. In contrast, large financial-bank stocks typically trade at around 10–12 times P/E, making their valuations comparatively reasonable. After the picture of an economic “soft landing” gradually becomes clearer, capital naturally starts moving toward value stocks with stable earnings and dividend support.

The interest-rate environment isn’t actually too bad for the financial industry. Although the Fed is entering a rate-cutting cycle, Taiwan’s financial holding companies had already earned more than 560 billion in earnings in the first 11 months of last year, setting a new high. I’ve observed that as long as the economy doesn’t hard land, the overall dividend payout capacity of financial holding companies is likely to be stronger than last year. With capital rotating into financial stocks, this logic holds up.

Recently, Fubon Financial and Cathay Financial have both performed well, which also reflects the market’s renewed reassessment of financial stocks. If there is only a mild recession, financial holding companies with strong loan quality and high capital adequacy ratios may actually drop the least. The 2022 bear market is the best example: the weighted index fell by more than 20%, while the financial index declined by less than 15%. When tech stocks pull back, they often drop by about 10%; financial stocks frequently only wobble around 3–5%, so the psychological burden is much smaller.

In simple terms, financial stocks refer to companies in categories such as banks, insurance companies, and securities firms. There are about 49 listed financial stocks in Taiwan, which are roughly divided into five categories. Among them, financial holding companies are the ones investors focus on most, because their businesses are more diversified, better dispersed, and their dividend yields are stable. Companies like Cathay Financial, Fubon Financial, and CTBC Financial are always popular. Pure bank stocks are suitable for people who want to hold steadily, with relatively low volatility. Insurance and securities tend to be more volatile, so they fit better for positioning when market trends shift.

If you have a smaller amount of capital, you can start with financial ETFs—low entry barriers and built-in diversification. If you want to enter and exit or adjust positions in a short time, there are other trading tools you can also consider.

The screening logic I use to recommend bank stocks is as follows: choose high dividend yield (at least 5%), low P/E ratio (for Taiwan financial holding companies, 10–15 times), and stable earnings. Fubon Financial rose from NT$65 at the beginning of last year to NT$85 by year-end, a gain of 30%. Its estimated dividend yield is 6.5%. Its insurance subsidiaries contribute steadily, and its wealth management growth is fast. Cathay Financial rose from NT$50 at the beginning of the year to NT$68 by year-end, a gain of 36%. Its dividend yield is 6–7%, and its Southeast Asia insurance business is growing strongly. CTBC Financial is a leader in digital transformation; its number of users for mobile banking grew by 20%, and with a P/E ratio of 13 times, there’s decent room for growth. E.SUN Financial mainly focuses on lending to small and medium-sized enterprises, runs its business steadily, and has net interest income growing by 10% year over year—making it suitable for long-term holding. Chang Hwa Bank is a pure bank stock with a high capital adequacy ratio and stable loan quality, and it’s one of the lowest-valuation options.

I’m also watching U.S. financial stocks. JPMorgan Chase is the largest bank in the United States, with a comprehensive range of businesses. If capital markets stay hot into 2026, it has significant potential for profit growth. Bank of America is the second-largest bank, with more than 68 million customers; it has the largest deposit base in the U.S., and many people’s salaries go there. Goldman Sachs is the most famous investment bank on Wall Street. If you believe capital markets will keep running hot into 2026, this one has the strongest explosive potential, though volatility is also higher. American Express focuses on high-end clients with strong spending power, and performance stays relatively stable regardless of economic conditions.

Many people buy financial stocks and treat them like fixed-income stocks—holding them and collecting dividends every year as if it were interest. That can certainly work, but financial stocks are not a perfect substitute for a fixed deposit. You may earn more than bank fixed deposits, but there are also fluctuations and risks. My operating strategy is usually to enter when the market is oscillating at high levels and electronic stocks have already surged and then pulled back—this is when capital is more likely to rotate into financials. After buying, I hold and collect dividends every year. When my psychological target price is reached, or when the dividend yield drops below 4%, I consider trimming or fully selling.

However, behind the apparent stability of financial stocks, there are risks. In terms of performance, over the past decade financial stocks have not outperformed the broader market. During black-swan events, financial stocks tend to fall even more than other stocks. Financial stocks are cyclical stocks with very strong periodicity, so they’re more suitable for swing trading—using technical analysis to profit from upward moves during bull markets and declines during bear markets.

Over the long term, financial stocks—acting as the “blue-chip” component of mature markets—still take up a significant share in global equities. Although they don’t have the explosive growth of tech stocks, they still have the potential to outperform the market. Their advantages include relatively stable results, and the government likely won’t let major banks fail easily, meaning risks are lower than in many other industries. The core logic for recommending bank stocks is stable dividends combined with defensive characteristics—volatility is usually lower than that of tech stocks.

Of course, you still need to watch the risks. Financial stocks are easily affected by market volatility and tend to experience deeper declines during bear markets. Interest rate changes also influence financial-stock performance, and investors find it hard to predict these accurately. There is also the risk of bad loans—if the companies being lent to can’t repay, banks face bad-debt risk.

For friends who want to invest in financial stocks, it’s recommended to prepare a portfolio allocation and don’t go all-in at once. If the United States can avoid a recession, many banks may have bright prospects. The best time to build a position in bank stocks is now—right in this environment of high-level volatility and when capital is starting to rotate.