Textile and Apparel Industry Weekly Report: Steady Performance, with Cotton Prices Continuing to Rise Slightly

　　Last week, within the textile and apparel sector, the two best‑performing subsectors were men’s wear and export‑oriented textiles, with average gains of 1.76% and 0.45%, respectively. At the opposite end, outdoor gear and footwear posted the largest declines, with average losses of 4.37% and 1.37%, respectively. The outdoor‑gear sector has ranked near the bottom of the performance list for two consecutive weeks. We believe that while first‑tier cities have reached maturity, second- and third‑tier markets are still experiencing rapid growth. With substantial untapped potential in these lower‑tier urban centers, the outdoor‑gear industry can continue to enjoy robust expansion and high growth rates in the years ahead. We remain optimistic about the sector over the medium to long term. The plan to pair state‑reserve cotton sales with a 3:1 ratio against the sliding‑scale tariff‑linked cotton import quota is now firmly set. Currently, the domestic–international cotton price gap remains sizable; this allocation ratio provides some support to domestic prices. In the fourth quarter of 2012, end‑user consumption showed signs of a modest rebound, though it remains uncertain whether this trend will persist. We expect limited catalysts for the sector in January, so investors should focus on companies with solid medium‑ to long‑term investment prospects. We recommend actively monitoring the home‑textiles sector. First, by analyzing each of the four major demand drivers, we anticipate an improvement in the sector’s underlying fundamentals, particularly as real estate‑related spending begins to pick up. Second, with market expectations having been revised downward to align with the industry average—and aided by the low base effect of 2012—we see little pressure to meet consensus earnings estimates, while upside surprises remain possible.