* Debt issuance by "frontier" economies has soared
* But low liquidity remains a problem for frontier debt
* Attention shifting to Asian energy importing nations
* Investors to seek risk premium from Africa oil exporters
By Karin Strohecker
LONDON, Jan 8 (Reuters) - Investors are turning more cautious about dollar bonds from "frontier" markets - a fast growing but less developed and higher risk sub-set of emerging economies - due to sliding oil prices, low trading volumes and expectations of smaller returns.
Within the diverse group of economies, which ranges from Belarus and Belize to Egypt and Pakistan, interest is likely to shift in 2015 towards energy importing nations that will benefit from cheaper crude, and away from oil exporters.
Debt issuance by frontier countries is a small proportion of the total for emerging markets, which are dominated by bigger names such as Brazil or Russia. But their governments have made the most of investors' hunt for better returns while interest rates in developed economies remain ultra low.
According to Thomson Reuters data, frontier countries sold $19.7 billion in hard currency debt last year - an almost 50 percent rise from 2013 and nearly three times the 2012 level.
Yet many, especially oil exporters such as Nigeria and Ecuador, are likely to be hit hard this year by the dramatic drop in crude prices, said Kevin Daly, portfolio manager at Aberdeen Asset Management's emerging debt team.
"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.
Around half the frontier countries in the index achieved double digit returns as this graphic shows: http://link.reuters.com/jyk73w
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.