Market attention on traditional sectors is increasing alongside recent market shifts. In this context, Orient Securities Company Limited has released a research report suggesting investors focus on apparel and fashion stocks with solid fundamental support.

The firm believes that while there is currently no systemic opportunity driven by a broad-based sector recovery, there are still select companies within the sector with promising future prospects and relatively reasonable valuations following prior stock price adjustments. The focus is primarily on outdoor sports, mid-to-high-end niche brands, functional home textiles, mass-market value-for-money brands, upstream textile manufacturing, and differentiated jewelry brands. The key views from Orient Securities are outlined below.

Focusing on Structural Opportunities Amid Continued K-Shaped Divergence in Brand Apparel

Following weak terminal retail sales in April, boosted by the early launch of the 618 shopping festival, retail apparel sales in May are projected to be slightly better than April. The firm posits that the most challenging period for brand apparel retail is now over, anticipating a weak recovery for the industry throughout 2026, characterized by a deepening K-shaped divergence.

In the short term, the firm is particularly optimistic about sub-sectors such as outdoor sports, mid-to-high-end niche brands, functional home textiles, and mass-market brands offering exceptional value for money. From a medium-to-long-term perspective, demand in the brand apparel sector is expected to concentrate on core elements like technology empowerment, environmental sustainability, and the rise of domestic trends featuring Eastern aesthetics.

Textile Manufacturing: Prioritize Upstream Opportunities Short-Term, Consider Midstream Cautiously

Benefiting from upstream inflation and inventory pre-stocking business models, the logic of improving performance for leading upstream textile manufacturers, which began in the fourth quarter of last year, is expected to continue deepening in the second quarter. The firm particularly favors opportunities in upstream manufacturing within the wool and cotton spinning sub-sectors. The recent new high for Australian wool prices reflects renewed market expectations for tight supply and demand in these sub-sectors.

For midstream manufacturing, companies are expected to face significant pressure in the first half of 2026 due to a combination of factors including slowing overseas demand, rising upstream costs, and Renminbi appreciation. However, a slight sequential improvement is anticipated in the second quarter compared to the first, with the second half of the year expected to be better than the first.

Leading midstream manufacturers have generally seen substantial prior stock price adjustments, such as Weixing Share, Shenzhou International Group, and Huali Group. Nonetheless, their medium-to-long-term global competitive positions remain unchanged. The firm believes these stocks are gradually entering a zone for cautious, early-stage positioning.

Gold and Jewelry Sector: Focus on Companies with Brand Differentiation or Proactive Business Model Transformation

The firm notes that the significant rise and high volatility in gold prices over the past two years have posed major challenges for the gold and jewelry industry, compelling the previously relatively extensive sector to reshape channels, adjust product structures, and enhance direct retail capabilities.

Under the current industry backdrop, the firm favors companies with strong brand differentiation, distinct advantages in appealing to younger demographics and Eastern cultural elements, or traditional jewelry firms that are actively transforming their business models and possess significant potential for future improvement.

Risks highlighted include potential fluctuations in the recovery of domestic apparel and jewelry consumption demand, exchange rate volatility, and a longer-than-expected duration of upstream price increases.