The biggest economic story no one is talking about may be China's transition into a consumer society.
Some data points. Cummins (NYSE:CMI) and Alcoa (NYSE:AA) are cutting forecasts, blaming slowing demand in China. These are industrial production suppliers, China's export-driven economy is slowing, so this should be expected. But at the same time Yum Brands (NYSE:YUM) credits China with helping it beat estimates for the last quarter.
It helps to understand the nature of China's consumer market. There is enormous pent-up demand, but most people still lack the capital to buy real estate in an overheated market. Thus, simple consumer desires like a night out to an "exotic" dinner (in China pizza is exotic) or a new smartphone will make sense.
There is an assumption that China's exports are slowing, its economy is slowing, and thus that a recession is in the forecast. That doesn't have to be the case. As was true for America two generations ago, demand is moving from production to consumption, only in this case from a lower base and on a lower level.
Consumer consumption, and some raises for workers, can maintain social cohesion across slack export demand, so when that picks up the economy and society are both healthier. This turns out to be a good time to buy China.
All this has to be bullish for China ETFs like FXI, GXC, HAO, and MCHI, which remain the best ways for an individual investor to play. Of the lot I prefer MCHI, which focuses large cap stocks and thus offers more stability. Stability is the key word.