Contrary to historical perception, emerging markets (EM) have evolved into a more resilient and reliable asset class. Improved policy frameworks, healthier fiscal and current account balances pre-crisis, and better inflation control mean EMs are better positioned to withstand global shocks than in the past, shifting them from 'racy' to 'reliable'.

Despite ten consecutive months of inflows, the current investment trend into emerging market bond funds is considered to be in its very early stages. Citing the massive, multi-year inflow period post-GFC (2009-2013) as a historical parallel, strategists believe the current cycle has significant room to run.

The most attractive investment opportunities in frontier markets are not in hard currency debt, which is often scarce or trades at very tight spreads. Instead, investors should focus on local currency markets and foreign exchange (FX), where the potential for alpha and higher returns is significantly greater.

Heavy investment in frontier markets is driven by a fundamental change in policymaker behavior. Central banks have adopted more orthodox FX and monetary policies and have resisted imposing capital controls during volatility, boosting investor confidence and attracting capital beyond the simple appeal of high yields.

Active management is more viable in emerging markets than in the US. The largest EM ETF (EEM) has a high 0.72% expense ratio, the universe of stocks is twice as large as the US, and analyst coverage is sparse. This creates significant opportunities for skilled stock pickers to outperform passive strategies.

Kazakhstan is attracting significant interest from both real money and hedge funds, moving from a niche market to a key focus area. Investors are drawn to opportunities in its local bonds and currency, encouraged by the central bank's policies and fiscal consolidation efforts, making it a new standout story in the frontier space.

After being 'shunned by the world for 10 to 15 years,' emerging market assets are benefiting from a slow-moving, structural diversification away from heavily-owned U.S. assets. This long-term trend provides a background source of demand and support, contributing to the asset class's current resilience against short-term volatility.

Due to compressed credit spreads, investors are shifting their focus from sovereign bonds to local market opportunities like currency and local bonds. They perceive fewer opportunities in credit and are actively seeking value in countries like Nigeria, Egypt, and Kazakhstan, where local stories are more compelling.

While high-yielding frontier markets have been resilient to Fed hikes and a strong dollar, their strength is threatened by crowded investor positioning. A significant external risk-off event could trigger a rapid unwind, as investors are concentrated in the same few liquid markets, creating a key vulnerability.