When US President Donald Trump landed in Beijing today with a delegation that included Jensen Huang from Nvidia, Tim Cook from Apple, and Larry Fink from BlackRock, Chinese stocks surged. The Compass portfolio's China fund (MCHI, an exchange-traded fund that holds a basket of large Chinese companies) rose about 2.4 percent on the day. For someone watching the portfolio, the temptation is to think: great call, you were right about China. The reality is more useful than that.
The Compass holds China because of the macro regime, not because of diplomatic meetings. Charles Gave and Louis-Vincent Darcet, the French economists whose framework drives this portfolio, argue that the most important question an investor can ask is not what is happening in the news today but what economic regime are we in, and which assets do well there. According to the macro regime monitor that the portfolio tracks, China is currently in what the framework calls a deflationary boom. That means the economy is growing while prices are falling or stable, a combination that historically favors equities. On top of that, Chinese stocks are cheap relative to their earnings compared to almost any other major market in the world. Those two facts, not any single political meeting, are why the portfolio holds MCHI.
So what happened today was that a short-term catalyst, the news of diplomatic engagement, aligned with a longer-term thesis. When those two things point in the same direction, you benefit from both at once. But this creates a decision trap that the Gave school of investing explicitly warns against: seeing a headline confirm your thesis and concluding you should add more. Today's summit is welcome news. It is not the reason to size up.
Here is the practical distinction. A regime investor holds MCHI because China fits the deflationary boom profile. A news-driven investor would have bought MCHI this morning when the summit was announced and might sell it next week if talks stall. The former earns the regime premium over months and years. The latter picks up short-term moves but pays transaction costs and tends to be wrong at inflection points when volatility spikes and instinct overrides discipline.
The same logic works in reverse. When news contradicts your regime thesis, staying put is the test. Suppose the Beijing talks collapse tomorrow and the headlines turn negative on China. Does the deflationary boom regime change? No. China's manufacturing survey data, its domestic debt structure, its position in AI hardware and electric vehicles, those do not flip overnight because of a diplomatic setback. The regime thesis requires actual shifts in economic data to change. Headlines are noise to the regime investor.
This does not mean geopolitics is irrelevant. It means geopolitics gets evaluated through the regime lens, not independently. The Gave framework explicitly tracks two geopolitical inputs: Taiwan risk (a real Compass exit trigger if military conflict becomes likely, because it would destroy the MCHI thesis entirely) and oil supply disruptions (relevant to the energy holdings). Neither of those fired today. The summit was a positive signal that reduced one tail risk, the risk of sudden escalation, without changing the underlying economic fundamentals.
The practical takeaway is this: if you own Chinese stocks because a news headline got you excited, your position is fragile. If you own them because the macro regime favors them, your position has a rationale that survives daily volatility. The regime thesis is your anchor. Geopolitical events are events to monitor, not events to trade. What would invalidate the Compass position in China? Two things. First, if China's PMI (a monthly survey of manufacturing and services activity) enters sustained contraction over several consecutive months, signaling the deflationary boom is transitioning to a deflationary bust. Second, if Taiwan tensions escalate to actual military conflict. Neither condition exists today. Until one of them fires, the MCHI holding stands.