Frontier markets: Not just a diversification story

And what role could frontier markets play next?

As emerging market (EM) debt has matured, investors are looking further down the development curve – towards economies offering higher yield and return potential, driven less by global macro and more by idiosyncratic country fundamentals.

Over the past decade, frontier market bonds have shown a correlation of just 0.03 to US Treasuries, highlighting how differentiated this segment can be.¹ In an environment where diversification is harder to achieve, that kind of independence can be rare and valuable.²

But this is not just a diversification story. Frontier markets themselves are changing – structurally, economically, and financially – in ways that are reshaping the investment case.

Opening the gates

Frontier economies have historically been defined by limited market access and reliance on official financing. That is changing. Over time, issuance of Eurobonds bonds has increased, policy frameworks have improved, and foreign investor participation has broadened.

Recent activity underlines the shift. In March 2026, the Democratic Republic of Congo came to market with six- and 11-year bonds that were around four times oversubscribed, signaling strong demand even in less established markets.³ Elsewhere, repeat issuance from countries such as Kenya, Nigeria, Ghana, and Zambia is reinforcing the depth of the opportunity.⁴

Local currency markets are also growing rapidly. Following the pandemic, several countries have liberalized foreign exchange regimes, tightened monetary policy and undertaken fiscal consolidation, attracting renewed portfolio inflows. Markets such as Nigeria, Egypt, and Kazakhstan are increasingly accessible and relevant to global investors.^5,6,7

The engines of expansion

Beyond capital markets, we believe frontier economies are benefiting from the following powerful long-term trends:

Demographics

Over the next two decades, hundreds of millions of people will join the workforce across frontier markets, supporting consumption, investment and productivity growth. This so-called demographic dividend remains largely untapped.

Technology

In 2010, there were just 13 million mobile money accounts globally. By 2024, that figure had reached nearly 800 million, with much of the growth concentrated in Sub-Saharan Africa.⁸ Financial inclusion is improving quickly, bringing more people into the formal economy and accelerating development.

Natural resources

We believe frontier markets account for a meaningful share of global production in several key commodities. Gabon produces almost a quarter of global manganese output, Morocco around one eighth of phosphate rock, and Nigeria and Rwanda together supply more than a third of tantalum – all essential inputs for batteries, fertilizers, and digital technologies.^9,10,11

At the same time, efforts by developed and emerging economies to diversify energy sources are supporting the trade balances of many frontier countries, strengthening external positions and improving resilience.

Returns that behave differently

For investors, these structural shifts are translating into a distinctive return profile. Frontier market sovereign bonds have delivered annualized returns of 8.22% over the past decade, broadly comparable to EM equities, but with significantly lower volatility.¹²

This combination reflects the idiosyncratic nature of frontier markets. Returns are often driven less by global macro conditions and more by country-specific developments such as policy reforms, commodity dynamics, or political shifts. That can create both opportunity and mispricing. Countries undergoing reform or recovery can reprice quickly, while others facing stress may offer attractive entry points for investors with the expertise to assess long-term value.

Recent market behavior illustrates this dynamic. Following the Liberation Day sell-off in 2025, frontier bonds rebounded sharply and went on to deliver close to 20% total returns over 2025.¹³

Risks remain, but so does progress

None of this is to underplay the risks. Frontier markets still face challenges around liquidity, currency volatility and governance. Over the past six years, 10 countries have defaulted on external debt, reminding investors of the potential for stress.¹⁴

Liquidity

Liquidity remains a defining feature. Frontier markets are generally thinner and less actively traded than their EM counterparts, leading to wider spreads and sharper price movements during periods of volatility.

However, the direction of travel is improving. Policy credibility has strengthened in many countries, and responses to shocks are becoming more orthodox. Post the outbreak of the conflict in Iran, Egypt’s decision to allow currency depreciation as a shock absorber, rather than exhaust reserves, is one example of a more disciplined approach.

At the same time, fiscal and debt metrics are improving in several markets. Angola provides a clear case: its debt-to-GDP ratio has fallen sharply from pandemic-era highs of around 120% to roughly 50% in recent years, supported by higher oil prices and policy reform.¹⁵