Recently watching the Taiwan stock market, I noticed an interesting phenomenon. The main index is oscillating at a high level around 28,000 points, and although electronics stocks with AI themes are still rising, capital is quietly flowing into financial stocks. This shift is worth noting.

Think about it: putting money in a bank savings account yields only 2% for a year, but investing in financial stocks can steadily earn a cash dividend yield of 5 to 7%, with the possibility of waiting for the stock price to rebound. The difference is really significant. So, is now the right time to buy financial stocks? Let me share my observations.

First, let's talk about valuation. The recent major rally in global stocks mainly comes from electronics stocks, especially AI supply chains, but after the surge, the P/E ratios have already risen above 30 times, and profits are hard to sustain the explosive growth seen last year. In contrast, large bank stocks mostly still have P/E ratios around 10 to 12 times, making their valuations relatively reasonable. As the economy gradually soft-lands, capital is starting to shift toward value stocks with stable profits and dividend support.

Next, look at the interest rate environment. Although the Fed is entering a rate-cutting cycle, which may put some pressure on net interest income, Taiwan’s financial holding companies earned over 560 billion NT dollars last year, setting a new record. I observe that as long as the economy doesn’t hard-landing, the overall dividend payout capacity of financial holdings is likely to be stronger than last year. Naturally, their stock prices have room for a rebound.

Market rotation is also very clear. Capital is moving from electronics stocks to defensive stocks, such as Fubon Financial and Cathay Financial, which have performed well recently. If profits and dividends remain strong, financial stocks should perform well. In case of a mild recession, financial holdings with good loan quality and high capital adequacy ratios tend to fall the least. The 2022 bear market is a perfect example: the weighted index dropped over 20%, but the financial index fell less than 15%. Tech stocks pulled back and dropped about 10%, while financial stocks often only fluctuated 3 to 5%, making the psychological burden much smaller.

Regarding Taiwanese financial stocks I favor, a few stand out. Fubon Financial’s insurance subsidiaries contribute steadily, and wealth management and digital banking businesses are growing quickly, with a P/E ratio around 12 times. Cathay Financial has significant growth in Southeast Asian insurance operations, with wealth management fee income increasing 15% annually, and a P/E ratio of 11 times. CTBC Financial leads in digital transformation, with mobile banking users growing 20%, and a P/E ratio of 13 times. E.Sun Financial mainly focuses on small and medium enterprise loans and retail banking, with a 10% annual increase in net interest income, making it suitable for long-term holding. Chang Hwa Bank is a pure bank stock, with high capital adequacy, stable loan quality, a P/E ratio of 10 times, and the lowest valuation.

In the U.S. stock market, major financial stocks include JPMorgan Chase, the largest bank in the U.S., covering retail banking, investment banking, and wealth management. If the capital markets remain hot into 2026, its profit growth potential is high. Bank of America, the second-largest U.S. bank, has over 68 million clients and the largest deposit scale nationwide. Berkshire Hathaway, managed by Warren Buffett, owns hundreds of companies in insurance, railroads, energy, and more, often called the most stable defensive stock in the U.S. stock market. Goldman Sachs is the most famous investment bank on Wall Street; if you believe the capital markets will stay hot into 2026, this stock has the strongest explosive potential but also higher volatility. American Express targets high-end clients with strong spending power; its performance remains relatively stable regardless of economic conditions.

My own strategy for buying financial stocks is as follows: choose targets with a dividend yield of at least 5%, low P/E ratios, and stable profits. I usually buy during high market oscillations when electronics stocks have risen and then pull back, as capital tends to rotate into financials. Alternatively, I buy in batches when the dividend yield exceeds 6 to 7%. After purchasing, I hold and collect dividends each year as interest income. I set target prices but not rigidly; for example, if I initially set 50 NT dollars and the stock rises to 45 NT dollars with improved company profits, I might adjust the target to 60 NT dollars. When the psychological target price is reached or the dividend yield drops below 4%, I consider trimming or selling completely to switch to another undervalued stock.

However, it’s important to seriously consider risks. Financial stocks are cyclical and tend to fall more sharply during bear markets. Changes in interest rates also impact their performance: rate hikes benefit banks’ net interest margins, but rapid rate cuts can lower investment returns. Loan default risk cannot be ignored—if the companies you invest in cannot repay their debts, banks face the risk of bad loans and write-offs. When black swan events occur, the impact on the financial industry can be very significant.

Therefore, financial stocks do have investment value, especially if you choose the right entry timing. But it’s recommended to diversify your portfolio and not go all-in at once. If you want to generate passive income long-term, starting with financial ETFs or a few stable financial holding companies, combined with high-yield savings strategies, is definitely feasible. Time is an ally for good companies, and in mature industries like finance, the longer the holding period, the more apparent the advantages become.