## Funds Quietly Flowing into Value Stocks: Financial Stock Recommendations and Allocation Strategies

The Taiwan stock market fluctuates around 28,000 points at high levels. Although electronics stocks remain strong driven by the AI wave, market funds are quietly shifting—from high-valued tech stocks gradually toward the financial sector. What does this phenomenon reflect? When fixed-term deposits yield less than 2% annually, but financial stocks can offer stable dividends of 5-7% plus potential stock price appreciation, the choice becomes quite clear. This article will analyze the rationality of financial stock recommendations, classification logic, and how small investors can start a long-term income plan with 10,000 NT dollars.

## Why Are Financial Stocks Becoming the Smart Capital Choice?

**Valuation Attractiveness Reappears**

Recently, global stock market gains have been led mainly by electronics, especially AI supply chain leaders. However, after a period of rise, these stocks’ P/E ratios have soared above 30 times, which is significantly high relative to profit growth rates. In contrast, large domestic banks’ P/E ratios mostly hover between 10-12 times, forming a stark contrast to the 25-30 times valuation of tech stocks. As signs of a soft landing in the economy become clearer, funds are beginning to favor those stocks with stable profits and ample cash dividends.

**Hidden Opportunities in the Interest Rate Environment**

Although the Federal Reserve has entered a rate-cutting cycle, which on the surface might pressure net interest margins, the actual situation is more complex. Taiwan’s financial holding companies have already accumulated over 560 billion NT dollars in pre-tax net profit in the first 11 months of 2025, setting a record high. Forecasts suggest that even if interest rates remain relatively low in 2026, as long as the economy avoids a hard landing, the overall dividend payout capacity of financial holding companies could surpass last year’s performance, not decline, creating conditions for stock price rebound.

**Defensive Value in the Economic Cycle**

The market is experiencing a rotation of funds from growth stocks to defensive stocks. Financial stocks like Fubon Financial and Cathay Financial have recently performed relatively well. If corporate profits and dividend policies remain steady in 2026, financial stocks should show impressive gains. Even in a mild recession, those with quality loan portfolios and sufficient capital adequacy ratios tend to experience the smallest declines. The 2022 bear market clearly proved this: the weighted index fell over 20%, while the financial index was limited to within 15%. This “attack when possible, defend when necessary” characteristic is especially valuable in the current high-level oscillating market environment—tech stocks often see double-digit declines during corrections, whereas financial stocks usually fluctuate only 3-5%, with significantly less psychological pressure.

Overall, the market shows clear signals of a “value stock revival.” After global markets enter a rotation phase, the growth slowdown of giants like the Magnificent 7 tech stocks leads capital to naturally flow into undervalued, dividend-yielding financial stocks. Financial stocks typically have P/E ratios in the 15-20 times range, with stable dividend records, providing a buffer during market volatility.

It’s important to note that financial stocks are not entirely risk-free assets. If 2026’s rate cuts are less than market expectations, or if the economy slows more than anticipated, or if international trade tensions escalate, loan default rates may rise, increasing volatility. Investors are advised to diversify their holdings to avoid over-concentration.

## Classification and Selection Logic of Financial Stocks

There are about 49 listed financial stocks in Taiwan, roughly divided into five categories:

**Financial Holding Companies**

These conglomerates operate in diversified sectors, including banking, life insurance, securities, asset management, and advisory services. Due to their diversified business scope, large asset size, and stable shareholder structure, they are the top recommended financial stocks for investors.

**Bank Stocks**

Bank stocks represent banks issuing their own shares (e.g., Chang Hwa Bank, Taichung Bank). Their core business is mainly deposit-taking and lending, making their operation logic more stable and predictable compared to insurance or securities stocks.

**Insurance Stocks**

Insurance companies mainly earn from premiums and investment income. Compared to banks, securities, or holding companies, insurance stocks have higher risk exposure and more obvious volatility.

**Securities Stocks**

The main revenue source for securities firms is brokerage business. Their performance is heavily influenced by trading volume and industry competition. When market trading volume surges and investors actively buy, securities stocks tend to lead the rally.

**Fintech Sector**

Focusing on digital payments and financial innovation, these companies are not the main focus of this article but are worth long-term observation.

New investors often start with conglomerates because of their diversified business, stable dividends (many over 5%), with Cathay Financial, Fubon Financial, and CTBC Financial being market favorites. Pure bank stocks are suitable for conservative investors seeking steady holdings with less volatility. Insurance and securities stocks tend to be more volatile and are better suited for strategic positions during structural shifts—such as when trading volume suddenly increases or retail investor enthusiasm peaks, securities stocks usually lead the rise; during significant interest rate movements, insurance stocks’ prices also fluctuate more.

For investors with limited capital, starting with financial ETFs (like 0055 Yuanta Financial, 006288 Financial Sector ETF) is a low-threshold way to achieve diversification.

## Taiwan Financial Stock Recommendations and In-Depth Analysis

Based on the latest market data and institutional forecasts, here are four selected financial holding stocks and one bank stock, each with different business advantages, suitable for various investment styles:

| Stock Code & Name | 2025 Price Trend | Gain | Estimated Dividend Yield | Core Drivers |
|---|---|---|---|---|
| 2881 Fubon Financial | Jan 65 NT → Dec 85 NT | +30% | 6.5% | Stable insurance subsidiaries, wealth management growth, brand marketing driving profit to new highs |
| 2882 Cathay Financial | Jan 50 NT → Dec 68 NT | +36% | 6-7% | Southeast Asian insurance growth, wealth management fee income +15% annually, new international momentum |
| 2891 CTBC Financial | Jan 28 NT → Dec 36 NT | +28% | 5.5% | Digital banking user growth, leading mobile app transformation, China market potential |
| 2884 E.Sun Financial | Jan 25 NT → Dec 32 NT | +28% | 6% | Steady SME loans, retail banking, net interest income +10% annually |
| 2801 Chang Hwa Bank | Jan 16 NT → Dec 20 NT | +25% | 5% | High capital adequacy, excellent loan quality, wealth management growth 12% |

**Fubon Financial (2881): Leading Position Supports Long-Term Imagination**

As Taiwan’s top financial holding, Fubon’s life insurance business provides stable contributions, with rapid expansion in wealth management and digital banking. 2025 EPS is estimated at 4.5-5 NT dollars, with a P/E ratio around 12, still attractive. The company actively invests in sports events and branding, with long-term brand value appreciating space. Risks include geopolitical fluctuations in overseas markets (Hong Kong, Southeast Asia).

**Cathay Financial (2882): Gradually Revealing Internationalization Benefits**

Cathay’s insurance business in Southeast Asia (Vietnam, Thailand) is accelerating, with wealth management fee income forecasted to grow 15% annually in 2025. EPS is estimated at 4 NT dollars, with a P/E of 11, offering competitive valuation. If interest rates stabilize in 2026, insurance profits could further improve. Risks include high sensitivity to interest rate changes; rapid rate cuts could suppress investment returns.

**CTBC Financial (2891): Leading Digital Transformation and Growth Potential**

CTBC leads industry in digital transformation, with a 20% growth in mobile banking users in 2025. Its exposure to China is relatively limited but still present. EPS is estimated at 2.8 NT dollars, with a P/E of 13, showing growth potential. If China’s economy recovers in 2026, stock performance could surprise. Main risk stems from policy uncertainties in China.

**E.Sun Financial (2884): Stable Management Attracts Long-Term Investors**

E.Sun’s core business is SME loans and retail banking, with net interest income forecasted to grow 10% in 2025. Known for conservative management, favored by risk-averse investors. EPS is estimated at 2.5 NT dollars, with a P/E of 12. Suitable for long-term holding. Risks are mainly domestic; economic slowdown could impact growth.

**Chang Hwa Bank (2801): Pure Bank Stock with Low Valuation**

As a pure bank, Chang Hwa has ample capital and stable loan quality. 2025 wealth management growth is 12%, EPS estimated at 1.5 NT dollars, with a P/E of 10, making it one of the most attractive valuation options. Its simple banking model offers less flexibility than conglomerates.

## US Financial Stocks Recommendations: A Must-Study for Global Investors

For Taiwanese investors, US financial stocks are also worth long-term inclusion. The following are key stocks favored by institutions for 2026, covering diversified banks, investment banks, and insurance giants:

| Stock Code | 2025 Gain | Core Business Drivers |
|---|---|---|
| BRK.B | +25-30% | Stock portfolio appreciation (Apple, Amex, etc.), stable insurance business, ample cash reserves |
| JPM | +30-35% | Leading investment bank, M&A revival, net interest income of $9.4 billion |
| BAC | +35% | Retail deposit leader, wealth management growth, share buybacks + high dividends |
| GS | +25-30% | Investment banking heavyweight, M&A/IPOs rebound, strong trading business |
| AXP | +20-25% | High-end customer loyalty, stable fee income, resilient affluent consumer spending |

**BRK.B (Berkshire Hathaway): Embodying Buffett’s Wisdom**

The world’s most renowned investment holding company, led by Warren Buffett, owns over a hundred subsidiaries including insurance (GEICO), railroads, energy, manufacturing, and major stocks like Apple and Amex. It’s essentially a super-large investment fund, with Buffett’s insurance income supporting stock investments, pursuing long-term compound growth. Many investors see it as “the most stable defensive choice in US stocks.”

**JPM (JPMorgan Chase): The All-Round Financial Powerhouse**

The largest US bank, with operations spanning retail banking, investment banking, wealth management, and credit cards. Over 300,000 employees worldwide, market cap over $800 billion, a true “all-round player” in finance. If capital markets remain active in 2026, profit growth potential is high, and valuation is not overly inflated.

**BAC (Bank of America): Close to Everyday Life**

The second-largest US bank, serving the general public—accounts, mortgages, credit cards, wealth management. Over 68 million customers, the largest deposit base in the US, closely tied to the US economic cycle.

**GS (Goldman Sachs): Wall Street Investment Banking Model**

The most prestigious investment bank on Wall Street, specializing in M&A, IPO underwriting, and debt/equity trading. Clients are mainly corporate executives and institutional investors; retail clients are rare. Its profitability is outstanding, dubbed “Wall Street aristocratic bank.” If 2026’s capital markets flourish, it could explode, but with high volatility. Recommended to keep its proportion within 20% of the portfolio and enter at appropriate times.

**AXP (American Express): Exclusive Credit Card for High-End Clients**

A globally renowned credit card company targeting high-end customers, with services including credit cards, fee income, and travel services. Main profit from card transaction fees rather than interest. Customers have strong spending power, and economic cycles have limited impact on their consumption, with better volatility characteristics than traditional banks.

## Deposit Strategies and Long-Term Holding Plans for Financial Stocks

Many investors habitually buy financial stocks and hold long-term, viewing them as “alternative fixed deposits” for annual income. While feasible, financial stocks are not perfect equivalents of fixed deposits—they earn more than banks’ fixed deposits but also carry volatility and risks, and cannot be considered risk-free assets.

For those aiming for long-term passive income, starting with financial ETFs (like 0055) or a few stable financial holding stocks is a practical high-yield deposit approach.

**Practical Allocation Strategies:**

Choose high-dividend-yield stocks (at least 5%), with low P/E ratios (Taiwanese financials 10-15x, US financials 15-20x), and stable profit records, such as Fubon Financial, Cathay Financial, E.Sun Financial, or US stocks like JPM, BAC. These are top long-term candidates.

Typically, buy during high market oscillations or after tech stocks have risen and then corrected. At this point, capital tends to rotate into financials. Alternatively, when dividend yields exceed 6-7%, consider phased accumulation. Hold long-term and receive dividends regularly as passive income. Target prices should be flexible—for example, if the initial target was 50 NT dollars, and the stock drops to 45 NT while fundamentals improve, raise the target to 60 NT. As Buffett says, “Time is the best friend of good companies,” and for mature industries like finance, long-term holding becomes increasingly advantageous.

When reaching your psychological target price or dividend yield drops below 4% (indicating the stock has fully appreciated), consider trimming or switching to undervalued alternatives. This approach, accumulated over years, mainly yields returns from dividends and stock price appreciation, without the need for constant monitoring.

However, behind the seemingly stable and limited volatility of financial stocks lie risks worth noting. Historical performance shows that, in both Taiwan and the US, financial stocks have not outperformed the market average over the past decade. During black swan events, declines tend to be deeper—for example, during China’s A-share crash in 2015, Taiwan’s 50 index fell 24.15%, but Yuanta MSCI Financial (0055) dropped 36.34%. During financial crises, banks face the risk of collapse. After Russia-Ukraine war erupted in February 2022, Sberbank experienced a bank run, with stock prices plummeting 50% in days, and overseas exchanges once trading at $0.01 before halting trading.

## Swing Trading: An Alternative Approach to Financial Stocks

Financial stocks are classic “cyclical stocks,” with obvious periodicity, making them suitable for swing trading strategies.

Swing trading is a short- to medium-term trading method that does not rely on long-term market trend predictions but uses technical analysis to profit from both bull and bear phases, offering traders great flexibility. Common tools include moving averages, support/resistance levels, RSI, etc.

Additionally, experienced investors with strong market knowledge and risk management skills can use contracts for difference (CFD) trading for higher leverage and flexibility, but this also amplifies risks—requiring extra caution.

## Long-Term Investment Value of Financial Stocks

Financial stocks have always been the backbone of the stock market. They constitute about 13.12% of the S&P 500 index. Although often labeled as “conservative and boring,” lacking the explosive growth of tech stocks, many financial stocks outperform the market over the long term due to low volatility, stable dividends, and prudent management.

Main advantages of recommended financial stocks include:

**Profit Growth Outpacing Economic Growth**

Over the past 30 years, revenue growth in the financial sector has significantly outpaced overall economic growth, enabling these companies to pay higher-than-average dividends, creating stable profit multiples.

**Regulatory Protection and Crisis Rescue**

Financial industries are vital to the global economy. Governments worldwide are unlikely to let major banks fail easily (as seen in post-2008 crisis rescues), which reduces risks compared to other industries and provides policy support during recessions or crises.

**Economic Defensive Characteristics**

Banking and insurance are highly correlated with the overall economy, with smaller fluctuations than tech stocks.

Holding quality financial stocks in a portfolio for over five years is a wise move. If the US economy avoids recession, many banks are expected to have promising prospects. Generally, higher interest rates benefit banks, as the net interest margin (difference between deposit and lending rates) widens. Although rapid rate changes can cause chaos, over time, banks’ assets and liabilities will gradually adjust, laying the foundation for stronger profit growth.

## Risks Investors Must Understand in Financial Stocks

**Systemic Market Risk**

Financial stocks are sensitive to market fluctuations. During bear markets, bottoming out is unpredictable, and declines tend to be deeper. When systemic risks from black swan events occur, financial sectors are impacted most directly.

**Interest Rate Sensitivity Risk**

Financial stocks are highly affected by rate hikes and cuts. Rising rates benefit investment income and expand bank net interest margins, benefiting many financial firms; however, low-interest environments can suppress profits and business growth. It’s very difficult for investors to precisely predict interest rate movements.

**Credit and Bad Debt Risks**

Financial institutions face the risk of bad debts. Since they serve many industries, if borrowers default, banks face non-performing loans and credit losses.

Considering both the advantages and risks, investors should establish a reasonable asset allocation plan to avoid over-concentration.

## Conclusion

As a pillar of mature markets, financial stocks, despite lacking the high growth momentum of tech stocks, account for about 13% of the S&P 500 and have long-term potential to outperform the market. For Taiwanese investors interested in US financial stocks, now is a relatively good timing—valuation is reasonable, with stable dividends and growth potential. Whether through financial ETFs, selected stocks, or swing trading, there are options suitable for individual risk tolerance and time horizon. The key is to develop disciplined investment plans, diversify risks, and realize the power of long-term compound growth in financial stock investing.