The world's best performing frontier markets

As emerging markets continue to fall from grace, their less high-profile frontier peers are stealing some of the spotlight.

A recent report from Bank of America Merrill Lynch showed that while $2.1 billion exited emerging market funds between January and mid-August, frontier market funds saw inflows of $1.5 billion in the same period.

(Read more: Forget Indonesia, the hot market is...Mozambique?)

The shift in sentiment is also reflected in the performance of equity markets since the start of this year. While the MSCI Emerging Markets Index is down 13.8 percent so far this year, the MSCI Frontier Markets Index is 10.3 percent higher.

Sebastien Lieblich, the research director at index compiler MSCI, told CNBC that frontier markets had escaped the market flight because they were less exposed to global market factors, such as Federal Reserve tapering and Western military action in Syria.

"Frontier markets are very much focused on internal demand and they exhibit relatively low correlation to the more global markets… and that probably explains why we see a great performance year-to-date on the frontier markets," Lieblich said.

Interested, but not sure where to look next? Click ahead to see which frontier markets are the top performers. (Percentage gain figures are for the MSCI index for each individual country year-to-date as of August 28, 2013.)

—By CNBC's Katy Barnato, with Bianca Schlotterbeck

Returns: 12.1%

Better known for sun-and-sand holidays, this Caribbean island also houses a top-performing stock index.

Wayne Dass, the CEO of the Caribbean Information and Credit Rating Services, said the index's rise was partially due to its weak performance in previous years, as well as the better economic picture in Trinidad and Tobago (T&T).

"From a macro perspective, economic conditions have improved somewhat in T&T from the years following the global economic crisis. This has not just resulted in improved financial performance of some listed companies, more importantly, it has caused investor confidence to increase," he said.

Dass also highlighted the successful tackling of a liquidity crisis at CL Financial, T&T's largest privately held conglomerate, which was bailed-out in 2010.

Terrence Clarke, the general manager of brokerage AIC Securities, said the index had also been boosted by this month's initial public offering (IPO) by First Citizens, a state-owned bank.

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He added that the country was also experiencing high levels of liquidity, coupled with low interest rates from banks and other financial institutions.

"Therefore, there has been an increased demand in dividend-paying stocks and relatively safe stocks. While overseas markets do provide alternatives to the local market, this is still only done by a few sophisticated investors and mutual funds," said Clarke.

Returns: 15.7%

Solid growth, low public debt and a crackdown on corruption have all boosted Romania's appeal, since the former Communist dictatorship joined the European Union in 2007. Plus, the International Monetary Fund recently updated Romania's growth outlook to 2.0 percent in 2013 and 2.2 percent in 2014.

For equity investors, Romania's appeal also lies in its large-scale privatization plans and the strong performance of large companies on its stock exchange.

"The superstar when it comes to capital markets in Eastern Europe has been Poland's Warsaw Stock Exchange for many years now. But it looks as if Romania and the Bucharest Stock Exchange have decided to give the Poles a run for their money," said Peter Elam Hakansson, the chairman of East Capital, a specialist in Eastern Europe and East Asian emerging markets.

(Read more: HowRomanian Workhorses Reach the Dinner Plate)

Hakansson singled out Romania's OMV Petrom as a company to watch, as it should benefit from both high oil prices and continuing liberalization of the domestic gas market. In addition, IPOs are in the pipeline for Romgaz, Romania's largest gas producer, and Hidrolectrica, the producer of nearly all the country's hydropower.

Returns: 15.8%

If frontier markets have stalwarts, then Qatar is one.

It has the second biggest country weighting in the MSCI Frontier Markets Index, after Kuwait, and four of the biggest corporate components in the index, namely Qatar National Bank, Qatar Industries, Al Rayan Bank and Ooredoo.

But Qatar will soon leave the frontier market club, as MSCI has upgraded the country (along with the United Arab Emirates) to emerging market status, effective from May next year.

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Frontier Strategy Group attributed Qatar's healthy performance to its strong decoupling from G-7 countries, and the fears of an end to stimulus measures by developed world central banks.

Bank of America has a "modest" overweight on Qatar, citing a re-acceleration of domestic money growth and strong oil production in July. In addition, the recent pick-up in industrial production from China — a substantial energy importer — could provide a further catalyst for Qatari growth.

Returns: 19.0%

Investors seeking a truly alternative frontier market opportunity might consider Pakistan, with its troubles with Islamic insurgents and strife along the Afghanistan border.

The MSCI Pakistan Index's performance could be attributed to the reasonably fair and open election held in May, which resulted in a peaceful handover of power from the military to a civilian government, and was praised by international lenders.

According to The Economist and Reuters however, the market has been boosted by the Karachi Stock Exchange's unusual amnesty, enacted in January 2012, which allows investors to purchase shares with no questions asked about the origin of the money.

(View more: Is it time to invest in Pakistan?)

Since the amnesty, trading volumes on the exchange have more than doubled, leading to speculation that it is being used for money laundering. Reuters also reported that insider trading and other manipulations were routine in the market.

Pakistan constitutes 4.4 percent of the MSCI Frontier Markets Index.

Returns: 23.4%

Argentina is home to Latin America's best-performing stock index this year.

Argentine stocks are benefiting from high domestic liquidity, as increasingly strict capital controls mean investors have few options other than the domestic equity market. Plus, hyperinflation means Argentinians have little incentive to save. HSBC forecasts inflation will average 24.9 percent this year.

"It is not so much an endorsement of the economic model, but the fact that it is very difficult to take money out of the country," said Stuart Culverhouse, chief economist at Exotix, a frontier market investment boutique.

HSBC retained its overweight rating on Argentina in July, but said this was based solely on a sharp weakening in the peso, rather than macro or fundamental credentials.

"Valuations are extremely cheap, but the policy of financial repression (including limits on dividend payments), a decelerating economy, possibility of technical default, and increased political noise (around the October mid-term elections) keeps us cautious in general," HSBC analysts led by Ben Laidler said in a report.

(View more: WillArgentina repay its debt?)

HSBC forecast Argentina will grow by 2.5 percent this year, but only 1.0 percent next year.

Laidler said he favored stocks which would benefit from the weakening currency, and which were less exposed to high political risk and slowing growth. He likes MercadoLibre, eBay's Latin American partner, and the continent's number-one ecommerce site.

Returns: 29.2%

Kenya's stock index is one of Africa's top performers, with gains of almost 30 percent this year.

The MSCI Frontier Markets Africa Index is up 13.4 percent, with gains led by sub-Saharan countries, which are isolated from the political and social turmoil affecting North African countries such as Libya. Indeed, most sub-Saharan African stock indexes have seen double-digit returns this year.

(Read more: Security headaches dampen investor enthusiasm in Libya)

Samir Gadio, an emerging markets strategist at Standard Bank, said Kenyan stocks got a boost after March's national election, which took place with minimal violence and unrest.

"The Kenyan stock exchange was supported by the positive post-electoral environment and a low domestic rate regime earlier this year, although this is now less the case as the KES (Kenyan government bond) yield curve has backed up since July," Gadio told CNBC.

The discovery of oil off Kenya's coast last year, by British explorer Tullow Oil, has also helped the Kenyan equity market. The country plans to start exporting the oil in 2016, making it the first oil exporter in east Africa, which the government hopes will diversify its export earnings and act as catalyst for infrastructure spending.

According to Bank of America, emerging market funds have increased their positioning in Kenyan stocks in the last 12 months. It forecasted that Kenyan companies will post earnings per share (EPS) growth of 22.1 percent this year, way above an emerging market average of 12.3 percent.

However, Gadio added that Kenyan valuations were becoming expensive, and recommended more scrutiny and specific stock selection.

Returns: 43.5%

Ghana has been a darling of Africa investors since "black gold" was found off its coast in 2007. It got a further boost when production started in late-2010.

Frontier Strategy Group ranked Ghana its top frontier/emerging market for stable growth in 2013, and forecast its economy would grow by 7.6 percent during the year, with around three-quarters of gross domestic product (GDP) derived from private consumption.

In June, the International Monetary Fund said Ghana was nearing middle-income status, noting its robust growth, strong democratic institutions, favorable prospects for oil and gas, and significant foreign direct investment.

"It would appear that Ghana has benefited from the extraordinary illiquidity in the domestic equity market, amid a strong bid from international investors to get involved in frontier markets," said Standard Bank's Samir Gadio.

(Read more: Africa has greater potential than India: Standard Chartered)

However, Exotix's Stuart Culverhouse noted that the Ghanaian cedi has fallen 12 percent against the dollar this year, and warned that Ghana could prove vulnerable to declining global liquidity.

"The authorities' large budget deficit (12 percent of GDP last year) has been in part to blame for the loss of confidence, but the unambitious budget target for 2013 and generally weak policy response has done little to restore sentiment," he said.

Returns: 48.1%

The UAE (United Arab Emirates) is home to the Middle East's top performing stock index. It also contains two of the biggest companies listed in the MSCI Frontier Markets Index — Emaar Properties and DP World — worth $4.9 billion and $2.6 billion respectively.

The UAE is a member of the Gulf Cooperation Council (GCC), along with Bahrain, Saudi Arabia, Oman, Qatar and Kuwait, an area whose equity markets offer an attractive risk-reward profile, according to HSBC.

"They have good chances to outperform BRICS (Brazil, Russia, India, China and South Africa) markets, both in an environment where the Federal Reserve keeps monetary policy loose, and where it tightens. Our base case is the former, but incrementally we suspect that a significant part of the flow coming into the Gulf could be looking for insurance against the Fed tightening," Pablo Goldberg, HSBC's global head of emerging market research, said in a report.

(View more: )

Bank of America forecasts that earnings per share for UAE companies will grow by 12.5 percent in 2013, just above an emerging market average of 12.3 percent. The bank flagged the UAE's increasing oil production, and China's recovering industrial activity levels, as upbeat signs for the country.

However, Frontier Strategy Group warned that the UAE's economy was slowing from its peak, and that it may be hampered by its strong dependence on oil exports, should global trade contract.

Returns: 55.6%

Emerging Europe has been in luck this year, benefiting from both the focus on frontier markets and the nascent recovery in the euro zone.

This ex-Communist country is the standout gainer from improving sentiment. Be warned before you dive in though: the index only includes two components, pharmaceutical firm Sopharma and holding company Chimimport.

"The equity market is relatively small, so even relatively limited amounts of liquidity can push up prices," said Marcus Svedberg, chief economist at East Capital.

However, Bulgaria also benefits from a healthy macroeconomic outlook, albeit one accompanied by a fragmented political landscape, following a hung election result in May.

(View more: )

Amit Mehta, an equity analyst at Pimco, noted that Bulgaria has made strong progress in combating its once onerous current account deficit, and now runs a 0.9 percent surplus.

"The region has also benefited from a pronounced lending boom (more prevalent in Romania), while the fiscal position in Bulgaria has been relatively benign, given accumulation of a sizable fiscal surplus in the boom years preceding 2007," Mehta told CNBC.