A decade ago, The Economist magazine characterized Africa as "the hopeless continent." More recently, relative political stability, a commodities boom, and economic reform in some of the continent's 54 countries have spurred talk of an "African renaissance."

That's going a little far, but investors should be paying closer attention. The Chinese have been investing heavily in Africa for years to secure some of its rich resources, and multinationals are moving in to serve a region that had six of the world's fastest-growing markets in the past decade. While global growth is slowing, sub-Saharan Africa is expected to expand 5.5% this year—faster than Brazil.

The commodities boom isn't the only positive factor. (That's one reason managers think a hard landing in China won't halt Africa's boomlet). By year end, half of Africa's countries will have had a democratic election in the past two years. The political stability has given sounder monetary and fiscal policies a chance to take hold, keeping a lid on inflation and creating low debt-to-GDP levels.

Cue the buzz. The MSCI Frontier Market Africa index is up 31% this year after a difficult 2011. The story of Africans moving into the formal economy, earning enough to buy beer and running shoes, and eventually cars and iPhones, is undeniably sexy. Yet investing in that story is another matter, since there are a limited number of listed and liquid securities. At the moment, Nigeria and Kenya are favored markets, in part because they offer a fair number of investable securities.

And big risks persist. To realize the full potential of Nigeria's 160 million people, 40% of whom are young, education is crucial. Ditto for jobs. The McKinsey Global Institute expects Africa to have the world's largest labor force by 2035, reinforcing the need for training. Corruption, which remains a big issue in places like Nigeria, also could be an obstacle. "What may be overplayed is the pace at which we will see economic reforms," says Babatunde Ojo, an analyst at the Harding Loevner Frontier Markets fund (ticker: HLFMX). Politicians, he says, may avoid making some hard decisions due to vested interests.

Investors have to be willing to invest for the long term. Fund managers favor individual stocks like Heineken's Nigerian Brewery (NB.Nigeria) and banks like Nigeria's Zenith Bank (Zenithba.Nigeria). Kenya Commercial Bank (KNCB.Kenya), which offers an entrée to increased investment in East Africa, is also a popular holding. The banks, which have been among the market's cheaper options, have been cleaning up their books after concerns about nonperforming loans.

South Africa, which is more developed, is another favored play. Although the country's recent violent mining protests have taken some local stocks down, many of the most popular consumer stocks remain pricey unless investors "seriously" take a three- to five-year horizon, says Oliver Bell, manager of the T. Rowe Price Africa & Middle East Fund (TRAMX). A cheaper option: telecom provider MTN Group (MTN.South Africa), which gets about half its sales elsewhere in Africa.

However, navigating the potential pitfalls in Africa isn't easy for individual investors. Nile Pan Africa (NAFAX) is one of the few Africa-focused active funds. Although tiny and pricey, its 26% return over the past year ranks it in the top percentile of Morningstar's emerging markets. Also strongly performing this year is Bell's more diversified T. Rowe Price fund, which returned about 15% in the same period. 

E-mail: reshma.kapadia@barrons.com