The rate of economic and political change is picking up in 2020, and investors may have to look carefully to find opportunities in international markets.

As U.S. markets gained steam early in the year, international stock pickers are declaring that their time has come, and a strong valuation-driven argument for moving assets into international markets can be made.

“The U.S., as wonderful as it is, does not have a monopoly on good businesses,” says Matthew McLennan, head of First Eagle Investment Management’s Global Value Team and portfolio manager on its Global Value and International Value portfolios. “Since international markets have underperformed, there are opportunities around the world to deploy capital.”

But the world is fraught with transformational change, said Ian Bremmer, president and founder of the Eurasia Group, while speaking to advisors at January’s TD Ameritrade National LINC Conference.

Among the transformations Bremmer discussed were an end to the era where the U.S. exists as the lone superpower in international relations, a clear movement away from globalization and the accelerated development of disruptive technology around the world.

“In geopolitics, there will be a global order that comes after what we’ve all lived with post World War II,” said Bremmer. “For the next few years, this is going to be a more challenging and volatile environment, and I don’t think that’s reflected in American markets today.”

Neither Bremmer nor the asset managers who spoke with Financial Advisor believed that a global recession was pending in 2020. Most managers predict slow—but positive—global growth.

International markets should grow at a faster rate than the U.S., says David Semple, who oversees VanEck’s emerging markets equity team and serves as portfolio manager for the firm’s emerging markets equity strategy.

“We expect a modest to better global growth,” Semple says. “Compared to the rest of the world, the U.S. will be fine, but not as exciting. The rest of the world should have more growth; in emerging markets, economies are running significantly faster than the global growth rate.”

While the coronavirus has caused a slowdown in international markets, the investors didn’t see the outbreak as a long-term threat to economic growth.

But in the near term, and especially in China, the virus is having an impact on GDP, says Patricia Ribeiro, senior vice president and senior portfolio manager at American Century Investments, where she manages the firm’s Emerging Markets Fund and Emerging Markets Small Cap Fund.

“We don’t know how long it will take for the outbreak to subside, but we do know it will have an impact on the quarterly data,” Ribeiro says. “That doesn’t change our outlook on the stocks. If we look longer term, the drivers of growth are still there.”

A slowdown or reversal of globalization does have some long-term implications for the world’s economy, especially in technology. While Bremmer argued that tensions over trade and intellectual property between the U.S. and China would lead to two different technological systems, with the rest of the world choosing sides, he also said that much of the old, commodity-based economy will continue to globalize.

Even so, any slowdown in globalization will take a bite out of growth, Semple says.

“If we’re not looking at deglobalization, at least the rate of globalization is going to slow down,” Semple says. “The rate of income growth is going to decline.”

The bifurcation of new technology between U.S. and Chinese spheres of influence will not slow the evolution of technology, said Bremmer.

While he discussed the displacement of labor by new technology, tech at the same time offers an opportunity for growth-minded investors, especially as some technology elements may be deglobalized and localized within emerging markets.

“Technology is where we’ve seen the biggest change,” says Andrew Mathewson, a portfolio manager of global emerging markets at Legg Mason’s Martin Currie Investment Management. “Ten years ago, emerging markets were the low-cost assemblers of technology consumed by developed markets. Today we’re talking about having emerging market intellectual property for key pieces of technology like the memory in your smartphone, the display and the cameras.”

Mathewson also points out that much of the technology for electric vehicles is based on intellectual property that resides in emerging markets.

While phase one of a trade deal between the U.S. and China was signed earlier this year, the investors still identified international trade as a potential source of risk.

“The problem with trade is that it’s in the hands of one to two people, one of whom has made a whole career out of being disruptive,” Semple says. “How do you handicap that for investors? It’s really hard. It’s probably the biggest risk we get cited to us.”

Bremmer said not to expect a phase two of the U.S.-China trade deal. He said China’s rise as a direct competitor to the U.S. is a potential risk. The asset managers, though, described China as an opportunity.

“The key for investors is what is the difference between markets, and to a large extent, that depends on China,” Semple says. “China is the largest part of emerging markets in terms of growth. We can disagree on what the real number is now in terms of growth, but it doesn’t matter. The stimulus the Chinese have been engaged in for the last year and a half is starting to have some nice impacts in terms of growth.”

Semple argues that while the coronavirus may mute some of that growth, China should be in “reasonably good shape” moving into 2021.

And while parts of Europe are facing threats of populism, Bremmer doesn’t see too many threats to the continent on the horizon. As part of Brexit, the U.K. and the EU will have to come to an agreement on trade.

Though Europe has been out of favor among many international investors in recent years, there are numerous value opportunities, according to David Marcus, CEO of Evermore Global Advisors, where he manages a value-oriented international strategy.

“We’re in a period of time—Europe has been a smaller story for many years—but there are various one-offs around restructuring, activist investors stepping up and private equity entering into the fold,” Marcus says. “What you have now is a confluence of events which will be conducive to investing in Europe.”

Japan is another more stable area on the globe, said Bremmer. There’s very little populism, policies are remaining consistent and the country’s civic institutions are not being delegitimized.

The changing practices with dividends and share buybacks among Japanese companies make equities there attractive, McLennan says.

“Japan trades at lower multiples, and there are many fine businesses there,” he says. “One of the things that’s happened in Japan in the last decade, we’ve seen a marked improvement in corporate governance. With low payout ratios and dividend yields in Japan higher than the S&P 500, we’re seeing opportunities there that many investors haven’t seen in their lifetimes.”

According to these managers, some of the best opportunities may lie in the emerging markets. Much of the prospects for emerging market equities depend on the trajectory of monetary policy and the strength of the U.S. dollar. With the dollar coming into 2020 exceptionally strong, many managers expect that it will either stabilize or erode in value moving forward.

“The U.S. dollar outlook is not one of a higher dollar, and that’s positive for emerging markets,” Ribeiro says. “A more stable dollar is good for emerging markets. If you look within the emerging universe, you’ll see that all of these economies are in different cycles and are at different points of their cycles, but there’s nothing negative in the sense of big decelerations.”

As the Fed has stopped its path of normalization and lowered interest rates over the past year, many emerging market central banks responded by lowering their own interest rates, says Ribeiro, which is conducive for investing in equity markets across the developing world.

Emerging markets are also maturing and becoming more robust—the development of local consumers and local demand is changing the risk profile of many emerging market investments.

“At the corporate level, which we’re all about, emerging markets look very good,” Semple says. “Not necessarily the smokestack industries or the state-owned banks. It’s all about the consumers—health care, the internet, the areas that are truly innovative, that’s where people should think about emerging markets.”

Whereas emerging market indexes were once dominated by energy and basic materials companies, today sectors like health care and technology are rising in influence.

“Commodities used to be a lot more relevant for quite a few economies in emerging markets,” Ribeiro says. “If we were looking at stock markets 10 years ago, the relevance of commodity names in those markets was a lot higher. We’ve seen the transformation happen pretty quickly. Today, these stock markets have greater exposure to consumer names and tech names. Those are now the big weight in emerging market indexes, but that wasn’t the case six to 10 years ago.”

The opportunity is especially exceptional where the rise of emerging markets consumers and cutting-edge technology are converging. Consumers are “leapfrogging” from old, analog, and fixed ways of doing business to new, digital and mobile methods.

“Consumers are making a leap straight into the online world and are spending their time shopping online; it’s actually a form of entertainment for some people,” Mathewson says. “Suddenly emerging market consumers are faced with this massive choice and price discovery that they didn’t have before. That’s why you see in some emerging markets, like China, a penetration of online retail that is much higher than it is in the U.S. We just don’t have those same ingrained behaviors.”

But the key to investing in emerging markets is to stay active and agile, McLennan says.

“If you just own an index, you’re just owning the whole index good and bad,” he says. “Oftentimes what we haven’t owned has made the difference—being out of the expensive tech stocks in the late 1990s. Being out of the BRICs when everyone else was enthusiastic. The willingness to selectively participate in markets.”