I think it should look in the game's folder before everything else.
It seems like it's the only thing keeping the games from being portable, so that's the purpose. :-)
It
does look in the game's folder first when
reading config. But it's not always safe to write in the game's own folder because it may be a read-only location, this is why starting with AGS 3.3.5 user config is now saved separately in a safe writeable location. I doubt it will ever be changed back (the location itself may be changed to something more appropriate than "Saved Games" though).
The configuration is read in two steps:
1) the default config found in game folder
2) the user config currently found in the standard save location.
They are then merged, and user config options override default ones when possible.
If by "portable game" you mean keeping config settings when you move your game to another place, then you may copy acsetup.cfg to the game's folder, or edit that one by hand, and game will read same options from there.
For the reference, there's a list of options for acsetup.cfg:
https://github.com/adventuregamestudio/ags/blob/ags3/OPTIONS.md