(Bloomberg) -- Wall Street’s emerging-market faithful are finally seeing better returns after missing out for years as US stocks soared.

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Morgan Stanley Investment Management, AQR Capital Management, Bank of America Corp. and Franklin Templeton are among those betting the tables may finally be turning in favor of developing-market equities.

Bank of America’s Michael Hartnett calls them “the next bull market.” AQR predicts they’ll deliver local-currency returns of almost 6% annually in the coming five to 10 years, outpacing a 4% gain for US shares in dollars.

Despite the S&P 500’s rebound of recent weeks, the gauge was flat on the year as of Friday’s close, while an emerging-market equivalent is up 10%. The gain is kindling hopes that a decade and a half of thwarted promise — in which the US benchmark rocketed more than 400% versus a meager 7% advance for developing-nation shares — could be at an end.

Among the reasons: a struggling dollar, rollercoaster S&P and questions over the safe-haven status of Treasuries, all of which have investors increasingly looking away from the US as President Donald Trump’s trade war takes off. Concerns about ballooning debt and deficits, which prompted Moody’s Ratings on Friday to downgrade the US credit rating, add to the headwinds for continued US market outperformance.

Some investors seeking alternatives to the US market have headed to the Japanese yen, German bunds and euro, but those willing to accept a bit more risk are rethinking the practice of yanking cash from emerging markets and pushing it into the US at moments of stress.

“The depreciation risk of the US dollar is a wake-up call for investors,” said Christy Tan, an investment strategist at Franklin Templeton, who touts developing-nation debt as an alternative to US Treasuries. “We think the US exceptionalism is over for the time being.”

The dollar’s four-month slump through April means the local-currency gains cited by AQR get a boost when they’re converted back into the greenback. MSCI Inc.’s benchmark emerging-market currency index hit a record at the start of May after gaining about 5% this year.

“Finally now we have the catalyst,” said Jitania Kandhari, deputy chief investment officer at Morgan Stanley Investment Management, who declared two years ago that the era of emerging markets had arrived as she switched from US to EM stocks.

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She’s more confident this time round: based on historical averages, the dollar’s weakening can contribute to one third of EM equity returns, she said. Having failed to match the US stock market in the past two years, her fund has returned 17% this year, beating 97% of peers, according to data compiled by Bloomberg.

Debt Burdens

Now Kandhari’s digging deeper, looking for stocks in banking, electrification, health and defense that are exposed to local demand, and therefore less vulnerable to higher tariffs. At AQR, Managing Director Chris Doheny is turning his attention to emerging-market companies with a smaller capitalization that he predicts will perform well in the medium to long-term.

Inflows to US-listed ETFs that invest across emerging markets, as well as those that target specific countries, totaled $1.84 billion in the week ended May 9, more than double the previous week’s amount, according to data compiled by Bloomberg.

To be sure, market reversals, political upheavals and local crises are a baked-in feature of the EM asset class, and the gains this year could yet stumble. Spotty earnings growth in some developing nations compared with those of the US and other developed markets in addition to transaction costs also give pause to some investors.

“On the one hand, emerging market GDP is growing faster than developed market, but the real issue is recurring earnings growth,” said Michael Bailey, director of research at Fulton Breakefield Broenniman.

“One long term example is China, where the economy is growing quickly, but many times Chinese companies issue so much stock that earnings growth disappoints, compared to the US and non-US developed,” he said. “India is another compelling emerging market in theory, but it can be hard to access with high transaction costs, and long term returns have been similar to the S&P 500.”

And so far, the shift from the US to emerging markets isn’t showing up in broader capital flow data, while appetite for European assets is, according to Gabriela Santos, JPMorgan Asset Management’s chief market strategist for the Americas.

But if the dollar continues to weaken “then that second step could spill over to emerging markets in a positive way,” she said.

Compared with some of the larger emerging markets, the US looks constrained in terms of what it can do to bolster the economy as its outstanding debt rises toward $30 trillion. Countries including India and the Philippines already moved fast with aggressive rate cuts, while the Federal Reserve is wary of easing too aggressively in case it reignites inflation.

“The fundamentals of major emerging markets are robust, characterized by lower external debt and favorable debt-to-GDP ratios,” Franklin Templeton’s Tan said, citing Turkey, Saudi Arabia, South Korea, and several Asian nations.

“This low debt profile is a significant draw, especially when compared to the US.”

Key events to watch this week:

Presidential elections in Romania and Poland Industrial production and retail sales data from China Consumer confidence and capacity utilization data from Turkey South Africa CPI and retail sales data HSBC PMI data from India

--With assistance from Zijia Song and Matthew Griffin.

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