There are good reasons for investing in so-called frontier markets, countries that belong outside the mainstream emerging markets category for reasons of development, market accessibility or size.
For example, in sub-Saharan Africa, there is the tantalising possibility that technology will help countries leapfrog the infrastructure hurdles that held them back until now. Or formerly closed-off Gulf nations need investment to help them wean themselves off oil dependence.
A couple of years ago, bond investors jumped on the bandwagon, enticed by double-digit returns on frontier bonds. Issuers got the message, and cranked up their borrowing in response. In 2018, investors grew wary and began exiting the market, pushing bond returns sharply negative for most emerging market issuers.
The Risky Finance sovereign debt tool can be used to investigate these trends. Using iBoxx data we see how dramatic it is, particularly when contrasted with more seasoned emerging markets. Our visualisation tool below ranks new borrowing versus total borrowing for each country, aggregating local currency and hard currency debt.