When you hear that an investment portfolio is buying into China while avoiding the United States, the reaction is often skepticism. China's economy has complicated political risks. Its property sector has been struggling for years. And US markets have dominated global returns for most of the past decade. So what reasoning would lead a macro portfolio to flip that conventional bet?
The answer comes from a framework developed by two French economists, Charles Gave and Louis-Vincent Darcet, who spent decades trying to map why the same assets perform brilliantly in one period and terribly in another. Their insight was that the economy cycles through four distinct states, each defined by two variables: whether growth is rising or falling, and whether prices (inflation) are rising or falling. They call these four states quadrants: an inflationary boom (prices up, growth up), an inflationary bust (prices up, growth down), a deflationary bust (prices down, growth down), and a deflationary boom (prices down, growth up). Each quadrant has a historically different winner, and understanding which quadrant you are in changes the entire investment decision.
The Compass portfolio at ClaudePortfolio runs this framework every morning against Jeremy Lasne's 29-country macro dataset, which assigns each major economy to one of these four quadrants and gives a verdict on whether that country's equities, bonds, cash, or real estate are currently worth holding. What the data showed this morning is the core reason the Compass holds China (via MCHI, a fund that tracks large Chinese companies) rather than US stocks.
The United States is in an inflationary bust. Prices are still rising faster than the Federal Reserve wants, driven largely by the energy shock from the Middle East conflict that began earlier this year. But the economy is also slowing: hiring has softened, consumer spending is strained by high costs, and businesses are cautious. The macro dataset gives a clear verdict for the US: equities are caution and bonds are avoid. In a Gave/Darcet inflationary bust, financial assets tend to struggle because companies face higher costs, central banks cannot easily cut rates, and the value of paper money is eroding.
China, by contrast, sits in a deflationary boom. Economic output is rising, driven partly by domestic consumption recovery and partly by export demand as Chinese manufacturers capture market share from supply chains disrupted elsewhere. And prices are stable to slightly falling within China, which means the Chinese central bank has room to support growth without sparking inflation. The macro dataset verdict for China: equities are favor. In a Gave/Darcet deflationary boom, equities tend to do well because companies are growing, borrowing costs are manageable, and there is no inflation headwind eating into margins.
This creates a striking divergence. Two of the world's largest economies are in opposite quadrants of the Gave/Darcet compass at the same time. The US is in the quadrant where financial assets historically struggle. China is in the quadrant where equities historically do well. The Compass portfolio is positioned to reflect this divergence: it holds Chinese equities and deliberately avoids US large-cap stocks.
The practical takeaway for anyone learning macro investing is this: the question is not which country is bigger or which market has performed better over the past decade. The question is which regime is each country in right now, and which asset class has historically outperformed in that regime. The Gave/Darcet framework provides a systematic, framework-based answer rather than relying on narrative or recency bias.
The argument that would invalidate this conclusion is clear. If China's growth data disappoints, or if geopolitical pressure materially impairs companies held in MCHI, the deflationary boom read for China could shift. Similarly, if US inflation cools quickly, such as a ceasefire in the Middle East returning oil prices to normal, the US could exit the inflationary bust quadrant and US equities would become attractive again. The Compass does not hold China forever. It holds China because that is where the Gave/Darcet compass is pointing today.