'Frontier' debt
"The outlook is tenuous for some countries, given the sensitivity for oil," said Daly. "Investors will be a little bit more circumspect and demand a higher risk premium when it comes to these kind of commodities-sensitive countries in the current backdrop."
With emerging market sovereigns overall issuing just over $100 billion in hard currency bonds last year, frontier markets remain a niche investment but they have been a rewarding one.
Anyone who bought bonds from the around 30 countries in the benchmark JPMorgan Next Generation Emerging Markets index ( NEXGEM) would have made a return of just over 10 percent last year. That compares with 7 percent for mainstream emerging sovereigns or 3.6 percent for emerging market corporate debt. Few believe this performance can be repeated in 2015, but Aberdeen's Daly expects a still healthy 4-5 percent return across NEXGEM in 2015. Roy Scheepe, senior client portfolio manager at ING Investment Management predicts 7-9 percent.
Almost all of the world's fastest growing economies in recent years fall into the frontier category, he points out. "Fundamentals might be a little bit weaker, but for investors there is always the issue of alternatives - it's not as good as it was, but then look at everything else," said Scheepe. ING IM has $550 million of its assets under management in frontier markets, mostly hard currency debt.
Among these alternatives are German 10-year bonds, yielding as little as 0.44 percent, or Brazil, whose dollar bond maturing in 2043 yields just over 5 percent. Investors are focusing on Asia - a region heavy in oil importing frontier countries such as Sri Lanka, which is holding closely-fought elections this week. On the flipside, they are averse to crude producers, especially sub-Saharan African economies like Angola, Nigeria or Gabon.
Overall, weak economies and falling oil prices bring more risk, making it costlier for governments to raise foreign capi- tal. The cost of servicing dollar debt is also likely to rise once the U.S. Federal Reserve raises interest rates, a move widely expected to come at some point this year. Paul McNamara at investment management firm GAM, which has $5 billion under management and invests in frontier debt, expects a lot of opportunistic issuance this year, making it hard to predict overall volumes.
"Relatively few of these countries will have external issuance as core part of their budget or balance of payments for the year," said McNamara, investment director at GAM. "In most cases, they can manage without, but they will issue ... if they can."