London/ Johannesburg – Uganda is emerging as a hot destination for offshore investors seeking higher yields in frontier markets, as global risk-on sentiment pushes capital into smaller, higher-risk emerging economies.

More than $2 billion of Uganda’s domestic government bonds are now held by foreign investors—a record—while countries such as Egypt, Nigeria, and Kazakhstan also attract increased investment in local currency debt.

“You squeeze the lemon and the last drop is usually local currency debt and frontier markets,” said Philip Meier of Gramercy, highlighting the global hunt for yield as investors look beyond traditional emerging markets.

Frontier Markets: Specialist Terrain

Investing in frontier markets is typically reserved for specialist investors who analyze each country’s political and economic risk. Local bonds carry currency risks, and some countries have capital controls that make extracting funds difficult.

“On an index level, you haven’t made much money over the last 10-plus years,” Meier noted, emphasizing the complexity and volatility of frontier local currency debt.

Despite historical challenges, a weakening U.S. dollar and revived risk appetite have fueled a resurgence in frontier markets. Emerging market local currency debt has risen nearly 17% over the past year.

Uganda’s Rise

Uganda, long excluded from global financing due to controversial laws, resumed World Bank funding in June 2025, drawing investor attention. Total offshore holdings of debt and equities in Uganda now approach $3 billion, according to investor reports.

• S&P Global estimates $2.7 billion of Uganda’s domestic debt is held by non-residents, about 12% of total government domestic debt.
• The Uganda Central Bank reported offshore holdings of 3,069.8 billion Ugandan shillings ($845 million) at the end of 2024.

“Uganda remains a relatively marginal destination for foreign portfolio investment, but momentum is clearly building,” said Tomi Einesalo of LGT Capital Partners, citing a credible central bank, a resilient foreign exchange market, and prudent economic policymaking.

Risks and Rewards

The inflow of “hot money” can boost government finances but also heightens vulnerability to global risk sentiment, according to portfolio managers. Political uncertainty, such as President Yoweri Museveni’s re-election bid in January 2026, could spook investors.

Banks like JPMorgan and Bank of America note that even non-specialist investors are increasing exposure to frontier markets. JPMorgan recommends local currency debt in Nigeria, the Dominican Republic, and Paraguay, while Ghana, Zambia, and Uzbekistan are also performing well. Vietnam is currently the only negative performer in frontier local markets.

Market Drivers

The strong interest in frontier markets has been driven by:

• A weak U.S. dollar
• Anchored bond markets
• Supportive equity markets
• Mixed commodities outlook

“The global backdrop has been particularly favorable this year,” said Merveille Paja, BoFA’s sovereign credit strategist, noting that frontier nations could improve fundamentals by replenishing reserves.

However, risks remain: fading global growth, lower commodity prices, or a stronger U.S. dollar could trigger rapid outflows, especially from hedge funds and other non-specialist “hot money” investors.