Capital rotation in progress: Financial stocks rebound, how can small investors start positioning with 10,000 yuan?

The Taiwan stock market hovers around 28,000 points, with the tech stocks showing signs of fatigue, while an undercurrent is surging deep within the market—investors’ attention is gradually shifting from high-priced electronics stocks to long undervalued financial stocks.

Imagine this contrast: putting money in a bank fixed deposit for a year yields only 2% interest, but the same amount invested in financial stocks could steadily enjoy an annual cash dividend of 5-7%, and even profit from stock price appreciation when it rebounds. How big is this gap? Using NT$10,000 as an example, a fixed deposit yields only NT$200 annually, but financial stocks could bring in NT$500-700, plus the potential for stock price gains. No wonder capital is quietly shifting.

Why should we pay attention to financial stocks in this wave?

Valuations are severely undervalued

Most of the market rally has been led by tech stocks, especially AI concept stocks. But once they surge, their P/E ratios often jump to 30 times or more, while profit growth struggles to sustain last year’s explosive increase. In contrast, large bank stocks still trade at P/E ratios of 10-12 times, while tech stocks have already doubled to 25-30 times. Under the expectation of a soft landing for the economy, funds naturally flow toward those with stable profits and solid dividends—value stocks.

Unexpected advantages of the interest rate environment

Market chatter often says rate cuts are unfavorable for financials, but the reality is more complex. Taiwan’s financial holdings have already surpassed NT$560 billion in cumulative profit by November 2024, setting records. Even if the central bank continues to cut rates, as long as the economy avoids a hard landing, the dividend-paying capacity of financial holdings in 2026 is expected to be even stronger than this year, not weaker. This means room for stock price rebound remains.

Economic cycle as a defensive role

Looking back at the 2022 bear market reveals clues— the weighted index fell over 20%, but the financial index declined less than 15%. The former champion of declines became the least affected, demonstrating the “attack when advancing, defend when retreating” characteristic of financial stocks. When tech stocks swing wildly and halve, financial stocks often only fluctuate 3-5%, with much lower psychological costs.

Currently, the market is showing typical signals of a “value stock revival.” After the slowdown of the Magnificent 7 rally, global funds are naturally flowing back into undervalued, high-yield financial assets. Financial stocks generally have P/E ratios of 15-20 times and stable dividends, providing more buffer during turbulent times.

But honestly, risks are not entirely absent. If rate cuts in 2026 are much smaller than expected, or if the economy enters recession, or geopolitical tensions escalate, loan default rates could worsen, increasing volatility. The smart approach is diversification—don’t put all your eggs in one basket.

What categories do financial stocks fall into?

Among thousands of stocks in Taiwan, about 49 are financial stocks. They can be simply divided into five major categories:

Financial Holding Companies — the most popular choice

Financial holding companies operate across multiple sectors, managing banks, life insurance, securities, asset management, and more. Due to comprehensive services, large asset bases, and stable shareholder structures, they are favorites among retail investors. Examples include Cathay Financial, Fubon Financial, and CTBC Financial.

Bank Stocks — stable but with weaker growth

Pure bank stocks (like Chang Hwa Bank, Taichung Bank) focus on deposits and loans, with relatively simple operations but low management risk. Their volatility is usually less than that of financial holdings, suitable for conservative investors.

Insurance Stocks — rate-sensitive

Main income from premiums and investment returns, highly sensitive to interest rate environments. They carry higher risks and larger fluctuations.

Securities Stocks — market sentiment indicators

Revenue mainly from brokerage and commissions. When the stock market is hot, these stocks perform strongly; during downturns, they fade into the background, with particularly high volatility.

Fintech Stocks — global players

Like PayPal, Mastercard, etc., these are growth-oriented and differ significantly from traditional financial stocks.

Novice investors often start with financial holdings due to their diversified operations, risk dispersion, and stable dividends (most above 5%). Pure bank stocks are suitable for those seeking steady holdings. Insurance and securities stocks depend on market cycles; they are better entered during increased trading volume or when interest rates shift.

If capital is limited, financial ETFs (like 0055, 006288) are lower-threshold options.

Taiwan financial stocks: Four major financial holdings and one bank recommendation

Based on the latest data, here are the targets favored by institutions for 2026:

Fubon Financial (2881) — Market leader

Entered at NT$65 at the start of the year, rising to around NT$85 by year-end, nearly a 30% increase. The insurance subsidiaries contribute steadily, and wealth management plus digital banking are growing rapidly. P/E ratio about 12 times, EPS estimated at NT$4.5-5.0. Active in sports sponsorships and branding, with long-term brand value potential. Risks include geopolitical fluctuations affecting overseas expansion.

Cathay Financial (2882) — Southeast Asia growth story

From NT$50 at the start to NT$68 at year-end, up 36%. Insurance business in Vietnam, Thailand, and other regions shows significant growth, with wealth management fees increasing 15% annually. P/E ratio 11 times, EPS estimated at NT$4, with room for further growth if interest rates stabilize in 2026. Note that insurance is very sensitive to rate cuts.

CTBC Financial (2891) — Digital transformation pioneer

From NT$28 to NT$36, up 28%. Mobile banking users grow 20% in 2025, leading among peers. P/E ratio 13 times, EPS estimated at NT$2.8. Exposure to the Chinese market is a potential variable; a rebound in China’s economy could bring surprises. But policy risks in China are also not to be underestimated.

E.SUN Financial (2884) — Model of stable management

From NT$25 to NT$32, up 28%. Steady growth in SME loans and retail banking, net interest income up 10% annually. P/E ratio 12 times, EPS estimated at NT$2.5. Suitable for long-term holding, with the downside being business concentrated in Taiwan.

Chang Hwa Bank (2801) — Cheapest pure bank

From NT$16 to NT$20, up 25%. High capital adequacy ratio, excellent loan quality, and 12% growth in wealth management. P/E ratio 10 times, the most undervalued pure bank stock, attracting defensive capital. However, its business is more limited, with less growth potential than financial holdings.

US financial stocks: Five globally top-tier choices

For those looking to invest in US stocks, here are the five most favored by institutions. Taiwanese investors can use cross-trading or buy financial ETFs, or trade CFDs for short-term gains:

BRK.B Berkshire Hathaway (Warren Buffett)

Expected 25-30% growth in 2025. The world’s largest investment holding company, owning insurance, railroads, energy, manufacturing, and more, with numerous subsidiaries. Also holds large positions in Apple, American Express, etc. Cash holdings reach $380 billion. Simply put, it’s like a giant fund that uses insurance premiums to buy quality companies for compound growth. Many call it “the most stable defensive stock in US stocks.”

JPMorgan Chase

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

Bank of America

Over 35% growth. The second-largest US bank, with over 68 million customers and the top deposit scale nationwide. Its main customer base is the general public, closely aligned with American daily life. Leading in retail deposits and rapidly growing wealth management.

Goldman Sachs

25-30% growth. The most famous Wall Street investment bank, specializing in M&A, IPOs, and trading. Clients are mainly corporate executives and institutional investors. If M&A and IPO activity remain vigorous in 2026, it has strong explosive potential, but also high volatility. Limit to no more than 20% of your portfolio.

American Express

20-25% growth. Globally renowned credit card company targeting high-end clients, earning mainly from card transaction fees rather than interest. Customers have strong spending power, and economic downturns are less impactful, with smaller fluctuations compared to traditional banks.

How to operate bank stocks and financial stocks

Fixed deposit stock strategy — Long-term dividend income

Many buy financial stocks and hold them as fixed deposits, collecting annual dividends as interest. This is feasible, but one must recognize: financial stocks are not risk-free like bank deposits; they have volatility and risks.

Operational approach:

Choose high-yield (at least 5%), low P/E (Taiwan financial holdings 10-15 times, US stocks 15-20 times), and stable profit targets, such as Taiwan’s Fubon, Cathay, E.SUN, and US’s JPM, BAC.

During market high and tech stocks retreat, buy in batches, or when dividend yields exceed 6-7%. Hold long-term and collect dividends annually.

Set target prices but stay flexible—if profits improve but stock price hasn’t reached the target, raise the target. Buffett says “time is a friend of good companies,” especially true for mature industries like financials.

When the psychological target price is hit, or dividend yield drops below 4% (meaning stock price has risen), consider trimming and shifting to undervalued targets.

This approach mainly generates returns from dividends and stock price appreciation over years, without daily monitoring.

Swing trading — capturing volatility for profit

Financial stocks are cyclical, with strong periodicity, making them more suitable for swing trading than long-term holding.

Swing trading uses technical analysis (moving averages, support/resistance, RSI, etc.) to find profit opportunities during bull and bear phases. Compared to buy-and-hold, swing trading offers more flexibility.

But note: over the past decade, performance of financial stocks in Taiwan and the US has not outperformed the market. Also, when black swan events occur, financial stocks tend to fall more sharply. For example, during China’s stock crash in 2015, Taiwan 50 ETF (0050) fell 24.15%, while financial ETFs (0055) fell 36.34%. After the Russia-Ukraine war in 2022, Sberbank in Russia plunged 50% in days. So, while seemingly stable, financial stocks carry significant risks.

The three major risks of financial stocks

Market risk — bear markets hit everyone

Financial stocks are highly affected by market fluctuations; during bear markets, their declines are often deeper than the index. Especially when black swan events trigger systemic risks, the entire financial sector is impacted.

Interest rate risk — rising or falling impacts

Financial stocks are extremely sensitive to interest rate changes. Rate hikes benefit net interest margins, but prolonged low-rate environments can suppress profits. Predicting interest rate direction is difficult, adding hidden risk.

Loan default risk — non-performing loans everywhere

Financial institutions operate across many industries; if borrowers cannot repay, banks face non-performing and bad debt risks. This is especially evident during recessions.

Final words

Although financial stocks lack the explosive growth of tech stocks, they account for up to 13% of the S&P 500 and have long-term potential to outperform the market. For Taiwanese investors wanting to enter US financial stocks, now is a good time—valuations are reasonable, dividends are steady, and growth potential remains.

The key is to recognize risks and diversify properly—don’t put all your assets into financial stocks. Combining dividend-focused strategies with swing trading can allow you to enjoy stable income while not missing out on rebound opportunities.