Morgan Stanley is firmly optimistic about emerging markets, stating that the Federal Reserve's interest rate cuts and the weakening dollar have paved the way for emerging market equities to outperform U.S. stocks.

According to a Bloomberg report on Wednesday, Jitania Kandhari, Deputy Head of Emerging Market Investments and Head of Macro Research at Morgan Stanley, said that U.S. economic growth and high interest rates previously favored the dollar, but now these two factors have peaked and are beginning to favor markets outside the United States, with the "macro fundamentals for emerging markets looking good."

Kandhari insists that this decade is the "emerging market decade," even if performance is sometimes less than satisfactory.

As of September 23, the MSCI Emerging Markets Index has risen by 11% so far this year, trailing the S&P 500 Index for the sixth consecutive year, which has risen by more than 20% this year.

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"I continue to have a constructive attitude," Kandhari said, "I believe that emerging markets will be the best-performing asset class of the decade."

Kandhari stated that previously, the faster tightening of policy by the Federal Reserve was beneficial for the dollar due to the interest rate differential between the U.S. and other countries. A series of fiscal policies introduced by the federal government stimulated rapid economic growth in the United States, also favoring the dollar. Kandhari believes that a 10-year U.S. Treasury yield at 4% is a reasonable level, which is "quite a good environment for emerging market assets."

Kandhari also said that after the Federal Reserve's interest rate cut, emerging market central banks that have only been on the sidelines so far will be less restrained in cutting interest rates.

The Federal Reserve's first significant interest rate cut in four years has sent a signal of easing to central banks in emerging market countries, with an optimistic outlook for the Southeast Asian market. Over the past two months, fund managers have continued to increase their holdings of sovereign bonds in Thailand, Indonesia, and Malaysia. Over the past three months, they have been net buyers of stocks in Indonesia, Malaysia, and the Philippines.

At the same time, influenced by an optimistic economic outlook and the Federal Reserve's interest rate cut, foreign capital has been pouring into the Indian stock market. The benchmark index Nifty 50 once broke through the 26,000 mark on Tuesday, setting a new historical high.