Market Monitor, Issue 02 | 2023

Issue 02 | 2023 allianzgi.com Grassroots Research® Market Monitor Smartphone Sales – China Air-to-Water Heat Pumps – Europe Luxury Jewelry Purchase Intentions Composite Decking Demand – US Agricultural Fertilizer and Farm and Preferences Survey – China Equipment Spending – Brazil Clear Aligners and Scanners – France Smartphone Sales – China Grassroots commissioned interviews Sources have been cutting prices over with smartphone retailers, distributors, the past one to two months to reduce and mobile service operators in China excessive inventory, with discounts of to understand the smartphone sales 30%–50%. This has been successful in outlook and competitive environment. bringing down inventory levels and According to sources, overall smart- for competing with used smartphone phone sales are expected to increase sellers. 53% expect price-cutting levels an average 3% in 1Q 2023 vs. 1Q 2022, to be more aggressive over the next and an average 5% in 1Q 2023 vs.1Q three months, and 47% expect it to stay 2019. Sales are expected to increase the same. One source commented, “The during the summer months and into only way to reduce excess inventory 2H 2023 from the slowdown in 2022, levels is through price cuts. With compe- wireless display, multi-screen interaction, with the highest sales growth in the tition rising from the used smartphone and AI technology. midrange to high-end segment. market, it’s hard to compete with the In addition, 53% of sources said that Indeed, all sources reported that current lowest prices on those nearly-new demand for peripheral products (such inventory levels are on average about older models.” as smartwatches, smart glasses, and four to five months vs. the appropriate Looking ahead, all sources expect to in- VR equipment) is positive in 2023, level of two to three months. 86% expect crease inventory procurement from June with an increase of young customers the inventory situation to improve over 2023 onwards. The most sought-after requesting new product models, such as the next three months, and is expected smartphone models are associated with smartwatches, while 47% said demand to take four to six months to get inven- 5G network support, extra-long battery is neutral as they only appeal to a small tory back to the appropriate level. life, high pixel density, large screens, group of customers. Value. Shared.

Market Monitor Composite Decking Demand – US Agricultural To gain an understanding of homeowner higher-end market, largely due to more Fertilizer and interest for spending on composite deck- color options. Still, 67% said there is a Farm Equipment ing in 2023 vs. 2022 in the US, Grassroots preference for Trex, while 7% said AZEK, commissioned interviews with deck build- and 26% said it depends on the project. Spending – Brazil ers/contractors and home improvement Looking ahead, 37% of sources expect retailers. 45% of sources who commented sales of composite decking will remain said overall demand for decking is flat in 2023 vs. 2022, while 26% said it will trending flat vs. the same period last year, increase, and 23% said they were unsure while 36% said up. and it will depend on the economy. One According to sources, 97% said customers source said, “Interest rates on purchasing prefer composite over wood decking, a new house are going up, so demand primarily due to easier maintenance for new homes is going to go down, and and longevity. At the same time, all said there is going to be a higher percentage customers are willing to pay for composite of people staying in their homes instead To gauge farm income expectations decking vs. wood decking, especially since of moving. As a result, a deck, pergola, or for 2023 vs. 2022 and track spending the cost premium is minimal with today’s some other outdoor innovation is going to intentions, Grassroots commissioned price of hardwoods. mean a smaller loan than an addition or interviews with operators of large Regarding market share, 80% of sources new home. Composite decking will drop farms in Brazil. 55% of sources expect said there has been no change in market slightly, but not as much as the housing their net farm income to decrease in share among composite decking brands market as a whole.” 2023 vs. 2022 due to bad weather over the past 24 months, while 20% said and price increases of fertilizers, TimberTech (AZEK) is gaining on the diesel, electricity, and transport, while 30% expect it to remain the same because of higher soybean prices and better productivity. Air-to-Water Heat Pumps – Europe 65% of sources have made no changes in intended acreage for To track the sales outlook and competitive 93% in Spain, 87% in Italy, and 73% in corn for 2023 planting allocations vs. landscape for air-to-water (ATW) heat France due to cost benefits, existing 2022, while 25% have decreased it, pump systems in key European markets, and future government regulations and 10% have increased it—down Grassroots commissioned interviews with pushing for more energy-efficient heating an average 5% overall. At the same heat pump distributors and contractors solutions, and ongoing or new financial time, 90% expect soybean allocations in France, Germany, Italy, and Spain. aid programs. One source in Germany to remain the same in 2023. Large Sources reported that sales momentum said, “The sales momentum will definitely farms in Brazil use the totality of the in 1Q 2023 is expected to rise vs. 4Q 2022 continue upwards. If I am right, solar and area, growing corn during winter and for 87% in Germany and 60% in Spain, as ATW pumps will become mandatory for soybeans during the summer. ATW heat pumps become more widely new construction in Germany.” Regarding recent fertilizer price installed in new construction and for When asked about market share, sources increases, 40% of sources expect replacing traditional boilers. It is expected said that Daikin is the leading brand to keep farm receipts flat due to a to stabilize for 67% in Italy and 60% in in all countries, followed by Mitsubishi rise on soybean prices, while 35% France, after a significant sales increase (Mitsubishi Electric) in France, Italy, and expect a decrease greater than 30% starting several years ago when govern- Spain, and NIBE in Germany. Atlantic because purchases occurred when ment incentive schemes were deployed, (Groupe Atlantic) is the third-leading fertilizer prices were at a peak, and and due to product shortages. brand in France, Buderus (Robert BOSCH) 25% expect a decrease of up to 30% Regarding sales growth, sources reported in Germany, Samsung in Italy, and due to purchases at a lower price and that overall demand for ATW heat pumps Panasonic in Spain. a reduction in the farming area. One is expected to increase in the next two source commented, “The next harvest to three years for all sources in Germany, will be the most expensive in history. I am anticipating an income decrease of around 30%. Besides this incredible increase in the price of fertilizers, (Cont. on page 3) 2

Market Monitor (Cont. from page 2) Luxury Jewelry Purchase Intentions we have also endured a rise in the and Preferences Survey – China price of electricity, diesel, and other important inputs. It is not a promising scenario.” Grassroots commissioned interviews with special occasions/celebrations for 44%; Indeed, 45% of sources expect consumers in China to assess the demand investment purposes for 35%; and gifting spending on fertilizer to remain flat in for gold and gem-set jewelry and for special occasions for 32%. 2023 due to unchanged needs and purchase intentions in next 12 months. According to sources, traditional gold higher costs. One commented, “I am Intentions to purchase luxury jewelry and diamond jewelry are the top two buying the same amount of fertilizer in the next 12 months is high, with 68% preferred types to buy across various oc- per hectare. I cannot buy less because having a high desire to buy, and 26% are casions. Traditional gold is most preferred I am farming on the same extension considering buying. In addition, 72% said for investment purposes as well as a tool of land—same area, same needs, they are more interested in buying luxury to hedge against inflation, as well as for same spending per hectare.” At the jewelry now vs. the last 12 months. daily wear and non-wedding related same time, 35% expect to decrease For the 72% of sources who cited an gifting. Diamond jewelry is preferred over because of higher costs and farming increasing interest in buying luxury jewelry, gold for wedding-related occasions, both on a smaller expanse of land, and 20% anticipation of more occasions for wear for self-use and gifting. expect an increase due to soil analysis and improved personal spending power Regarding spending budgets, sources requirements and larger farming area. are the top two reasons. Meanwhile, for reported the most common luxury jewelry When asked about the use of biologi- the 6% who cited less interest, deteriorated price range for day-to-day wear, special cal fertilizers, 35% of sources already spending power and fewer occasions for occasions, and gifting is RMB 10,000– use them, either alone or combined wear were the top two reasons. RMB 20,000 [USD 1,451–USD 2,902], with conventional fertilizers. One Indeed, the major motivations for buying while the price range for investment and source said, “I’ve been experimenting luxury jewelry in next 12 months include wedding use is higher at RMB 20,000– with biological fertilizer for the past daily wear for 55% of sources; self-use for RMB 50,000 [USD 2,902–USD 7,255]. two years and have had positive results. My ultimate goal is to be completely biological.” Meanwhile, 30% of sources would prefer to wait Clear Aligners and Scanners – France for further studies, and 25% have been using it temporarily on a trial basis. To assess general trends in demand and According to sources, 60% said brand Regarding spending on efficient brand competition for clear aligners since recognition was the main decision-making agricultural farm equipment, 65% the beginning of the year, Grassroots com- argument to prescribe a clear aligner expect it to remain flat because of missioned interviews with orthodontists brand, while 20% said superior technol- political uncertainties and the risk and dentists in France. Demand for clear ogy, and 15% said price. One commented, of high borrowing rates, while 25% aligners has been trending up for 70% of “Brand recognition is the main reason expect an increase of up to 30% due to sources since the beginning of the year as for choosing to prescribe Invisalign [Align the need for improvement. One source a result of growing concern about physical Technology]. They are head and shoulders commented, “A new government is appearance, social media influence, and above the competition in the marketplace just starting. We don’t know yet what word of mouth. Meanwhile, it has been and patients know about them from their policy for our segment will be. trending flat for 25% due to economic social media and friends. When I started Our goal is to keep the renovation pressures on patients’ expenditure of prescribing clear aligners, they were the schedule, but we need to wait a while.” choice. One source commented, “Demand only product available.” In addition, another 45% of sources for clear aligners has been static overall Looking ahead, 85% of sources do not expect spending on farm equipment since the beginning of the year, because intend to change brands of clear aligners to decrease based on the political of the big jump in bills patients have to or scanners in the next 12 months, as scenario and an actual lack of need, pay, combined with some short time change is disruptive, and 10% who com- while 30% expect it to increase working. The demand is still there, but mented said they cannot change clear because of the need to renew the fleet the dramatic increase in fuel and energy aligners because of company policy. and fulfill current demand, and 25% costs and prices has inevitably obliged expect it to remain flat as they will only some patients to make choices, and [clear keep to their existing schedule aligner] treatment is expensive.” of acquisitions. 3

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