(Bloomberg) — Frontier markets will likely extend their impressive rally into next year, thanks to investor optimism about economic recovery and reduced risks of sovereign defaults.

Asia Frontier Capital Ltd., a Hong Kong-based fund manager focused on the region’s high-growth economies, is buying stocks in Sri Lanka and Bangladesh. Aberdeen Group Plc sees potential for bond gains in Argentina, Ghana and Ecuador next year, while Federated Hermes Inc. has increased exposure to frontier bonds and favors debt from Nigeria, Sri Lanka, Pakistan and Ecuador.

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After shoring up their finances, some of these once debt-ridden economies have emerged as investor darlings this year given their perceived insulation from trade tensions and geopolitical risks. It’s a sentiment reversal from a few years ago, when some of them were mired in sovereign insolvency or debt restructuring, and it contrasts with ongoing concerns about fiscal woes in major developed nations.

“The frontier story is only beginning now,” said Ruchir Desai, fund manager at Asia Frontier Capital. “These countries have had to restructure the whole economy, the whole thought process of running the country.”

The MSCI Frontier Markets stock index has gained over 40% this year in dollar terms, set for its best performance since 2005. The FTSE Frontier Emerging Markets Government Bond Index has risen 12%, on track for a record year. Egypt, Pakistan and Bolivia are among countries that have delivered the highest returns on debt, Bloomberg indexes show.

“Frontier bonds have high income return component and capital appreciation opportunities, making them an attractive total return play in 2026,” said Mohammed Elmi, senior portfolio manager for emerging-arkets fixed income at Federated Hermes. “Frontier issuers are much more idiosyncratic in nature and less correlated to overall risk markets.”

Similarly, Daniel Wood, a portfolio manager at William Blair Investment Management, described frontier markets as one of the firm’s “highest convictions.” “We like a diversified basket of frontier countries that are uncorrelated with one another and should continue to see strong returns,” said Wood, who favors markets such as Uzbekistan, Kazakhstan and Ghana.