China’s economy would appear to have turned a corner. Government figures recently revealed factory output and retail sales significantly ahead of forecasts. At the same time, inflation dipped to its lowest level in 33 months, suggesting this higher growth had not yet led to a rebound in prices.

Prime minister Wen Jiabao’s prediction last month that the Chinese economy had bottomed out looks to have some credibility.

Although the last set of GDP figures was disappointing and, many believed, a precursor to the much-feared ‘hard-landing’ for the Chinese economy, the latest economic statistics have revealed a strong rebound. Industrial production rose 9.6% in October year-on-year – ahead of consensus analyst figures of 9.4%. At the same time, retail sales growth for October was 14.5% – a rise from September’s 14.2%.

This paints a picture of an economy firing on all cylinders. The government appears to be succeeding in its aim to redirect the country towards consumer-led growth while its industrial base is providing support during the transition. China has had a lot of naysayers and has been widely unloved by investors. If these recent statistics do herald a turnaround in its economy, who would be the main beneficiaries?

At first glance, the Chinese stockmarket would be an obvious place to start. The China/Greater China sector is the worst-performing IMA fund grouping over three years, with the average fund dropping 15.2% – a 15.7 percentage-point gap on the next worse sectoral average. This might suggest the country’s stockmarket was ripe for a re-rating.

Yet fund managers investing in the region now talk about a polarisation. Some consumer-facing companies have performed well while the stodgy majority state-owned enterprises have dragged down the indices. The cheapest companies within China may not be the ones to benefit from a rebound in its economy. Equally, there are a number of export-driven companies that would benefit more from a resurgence in the US economy than a domestic recovery.

As such, a number of multi-managers are instead turning to some of the US consumer brands that are likely to benefit from the development of the brand-conscious buyer in China. They believe the best way to play the recovery of the world’ most populous country may be through US large cap funds or through a global brands or global consumer fund.

A similar case could be made for a pan-Asian fund. If China rebounds, it will take the rest of Asia with it and a skilled fund manager with sufficient flexibility should be able to play this trend. Overall, in seeking to benefit from any upturn in China, investors would be well-advised to look beyond the most obvious route.

NOVEMBER 2012