Recently, there’s a pretty interesting phenomenon: after tech stocks have risen a lot, large amounts of capital have quietly started shifting toward financial stocks—especially bank stocks, which have been undervalued for a long time. I took a closer look, and I found that the logic behind this rotation is actually pretty clear.

Imagine this: if you put your money in a bank fixed deposit for one year, you only get 2%, but financial stocks can reliably give you a cash dividend yield of 5% to 7%, plus the opportunity to wait for the stock price to catch up and rebound. The difference is really big. Also, most large bank stocks’ P/E ratios are still around 10 to 12 times. Compared with tech stocks, which are generally 25 to 30 times or higher, their valuations are relatively much more reasonable.

Why is it worth paying attention to now? I’ve noticed several key points. First, the interest-rate environment isn’t too bad for the financial industry. Although the Federal Reserve is entering a rate-cutting cycle and net interest income will face some pressure, Taiwan’s financial holding companies had already earned more than 5600 billion in the first 11 months of this year, setting a new high. I believe that in 2026, even if the interest-rate environment is on the low side, as long as the economy doesn’t suffer a hard landing, the overall dividend distribution capacity of financial holdings is likely to be even stronger than this year. Second, capital is moving from electronics stocks to defensive stocks. Fubon Financial and Cathay Financial have both performed well recently, which is a signal of market rotation. Third, financial stocks have strong defensive characteristics. During the 2022 bear market, the weighted index fell by more than 20%, but the financial index declined by less than 15%, with bank stocks dropping the least. When tech stocks bounce back and then pull back, they often fall by 10%; financial stocks, however, usually only move around 3 to 5%. That creates a much smaller psychological burden.

Simply put, financial stocks refer to the stocks of companies such as banks, insurance firms, and securities firms. In Taiwan, there are about 49 listed financial stocks in this category. Newcomers mostly start with financial holding companies, because their businesses are diverse, more diversified, and well-distributed, and their dividend yields are stable. Stocks like Cathay Financial, Fubon Financial, and China Trust Financial are always popular. Pure bank stocks are suitable for people who want to hold steadily, with lower volatility. Insurance and securities tend to have larger swings, so they’re better for setting up positions when market trends are shifting.

If your capital is limited, you can start with a financial ETF—low threshold and diversified exposure. My own approach is to choose assets with high dividend yields, low P/E ratios, and stable earnings. I usually enter when the broader market is trading high and range-bound, and when electronics stocks have risen a lot and then pulled back. At that time, capital is easy to rotate into financials. Alternatively, you can buy in batches once an individual stock’s dividend yield stands above 6% to 7%. After buying, just hold it—collect the dividends each year, like interest.

Here in Taiwan, Fubon Financial’s insurance subsidiaries contribute steadily, and wealth management is growing quickly. Its P/E ratio is about 12 times, and the valuation is still low. Cathay Financial’s insurance business growth in Southeast Asia is significant; its P/E ratio is 11 times, making it attractive. China Trust Financial’s digital transformation is leading, and it has good growth potential. E.SUN Financial focuses mainly on loans to small and medium-sized enterprises and retail banking, and its steady management style is favored by conservative investors. Chang Hwa Bank is a pure bank stock with a high capital adequacy ratio, stable loan quality, and is one of the lowest-valuation choices.

In the U.S. stock market, JPMorgan Chase is the largest bank in the United States. Its business covers retail banking, investment banking, and wealth management, and it has more than 300,000 employees worldwide. If capital markets stay hot into 2026, there is strong potential for profit growth. Bank of America focuses on everyday consumers, with more than 68 million customers, and it has the largest deposit base in the U.S. Goldman Sachs is the most famous investment bank on Wall Street. If you believe that capital markets will remain hot in 2026, this stock has the strongest breakout potential—but it also comes with higher volatility. Berkshire Hathaway is a huge investment holding company; under it are hundreds of companies in insurance, railroads, energy, and more. Many people call it the most stable defensive stock in the U.S. American Express targets premium customers with strong spending power, and its performance stays relatively stable whether the economy is good or bad.

Financial stocks are cyclical stocks, with very strong periodicity, so they’re more suitable for swing trading. But to be honest, behind their seemingly stable, low-volatility appearance, there are also risks. Looking at performance, over the past 10 years, financial stocks have not outperformed the broader market. In black swan events, financial stocks tend to fall deeper than other stocks—for example, during the 2015 China A-share market crash, Yuanta MSCI Financial dropped by 36.34%. During financial crises, banks also face the risk of shutting down at any time.

However, in the long run, financial stocks still have value. Over the past 30 years, the revenue growth rate of the financial industry has been clearly faster than the overall economy, enabling financial companies to pay dividends to shareholders at levels higher than average. The financial sector is tied to the health of the global economy, and governments are unlikely to let major banks fail easily, which keeps the risk of financial stocks lower than that of most other industries. Banks often benefit from higher interest rates because their net interest margins can expand. Over time, banks can adjust both the asset and liability sides of their balance sheets and position themselves for stronger earnings growth.

Of course, financial stocks are not a perfect substitute for fixed deposits. They may earn you much more than bank fixed deposits, but they also involve volatility and risks. If you want to receive passive income long term, starting with financial ETFs or a few steady financial holding companies and treating it like high-interest fixed deposits is definitely feasible. But it’s recommended to prepare a diversified allocation rather than going all-in at once. Financial stocks are easily affected by market volatility; during bear markets, the market bottom is hard to predict, and financial stocks generally fall more deeply. Financial stocks are also affected by rate hikes and rate cuts. In addition, the financial industry is prone to bad debt risk. If the companies you lend to cannot repay, banks face the risk of non-performing loans.

All in all, even though financial stocks lack the explosive growth potential of tech stocks, they make up a high proportion of global stock markets and have the potential to outperform the market in the long term. Now is a good time to lay out positions because valuations are relatively reasonable, and you get steady dividend payouts along with growth potential. Time is a friend of good companies, and for mature industries like financials, the longer the time horizon, the more obvious the advantages become.