Nigeria’s recent equity market rebound pre-Middle East crisis is highlighting a structural problem in how African markets are measured by global benchmark providers. According to global investment advisory firm RisCura, the way many global indices are constructed can cause benchmarks to disengage from African markets during periods of currency stress, even while institutional investors remain actively invested.
This creates a growing disconnect between benchmark returns and the real-world portfolios they are supposed to measure.
“Global indices are designed around standardised rules such as free float criteria, capital mobility, liquidity thresholds and exchange rate assumptions,” says George Tsinonis, Head of Investment Analytics at RisCura. “In African markets, particularly during periods of currency volatility or repatriation constraints, those rules can produce outcomes that no real investor portfolio actually experiences.”
Nigeria provides a recent example. During 2023 and 2024, foreign exchange repatriation challenges led major index providers to remove Nigerian equities from African indices in line with global index construction rules.
Yet Nigeria remains one of the continent’s largest equity markets and continues to feature in long-term institutional and retail portfolios.
When the Nigerian equity market later rebounded, investors still holding positions captured those gains, but the rebound was absent from benchmark returns.
“In practice, pension funds and asset managers cannot simply exit a market overnight,” explains Tsinonis. “They continue managing portfolios through currency cycles, regulatory changes and liquidity constraints. When a benchmark removes a market entirely, the measurement framework stops reflecting how portfolios are actually invested.”
Currency dynamics can further distort how African market performance is measured.
In many frontier markets, official exchange rates used by global benchmarks can differ materially from the rates investors can actually access when repatriating capital.
Egypt illustrated this challenge in 2024 when the Central Bank allowed the Egyptian pound to float more freely against the US dollar, triggering a depreciation of more than 60% in a single day – a very significant devaluation in the country’s modern financial history.
At the same time, investors faced delays accessing foreign currency for repatriation, prompting global index providers to flag the market for accessibility concerns.
Similar distortions were evident in Nigeria, where a widening gap between official and parallel exchange rates created significant differences between benchmark returns and the returns investors could actually realise.
“When benchmarks rely exclusively on official exchange rates, the resulting performance can diverge significantly from the real economic experience of investors,” says Tsinonis.
To address these structural challenges, RisCura Analytics developed for the industry the RisCura Africa RealView Index (RARI), a benchmark framework designed for Africa ex-South Africa equity markets built on empirical institutional investment data.
Unlike traditional global indices that may remove markets entirely during periods of stress, RARI maintains and monitors market exposure while adjusting for liquidity conditions, trading depth and realistic currency accessibility. Typically, RARI follows ground rules that would phase a country out over time if it does not meet its eligibility criteria instead of removing it overnight. This phase process also applies to an inclusion of a new country into RARI.
The framework also incorporates different approaches to currency measurement, including both official exchange rates and realisable exchange rate methodologies that better reflect how investors access foreign currency.
“Our objective was not to design a theoretical index,” says Tsinonis. “It was to build a benchmark that reflects how institutional portfolios actually behave across African markets.”
RisCura’s work draws on years of extensive empirical portfolio data across African equity markets, capturing how institutional investors genuinely construct and manage portfolios in the region.
Comparisons between RARI and traditional global indices show meaningful differences in return profiles, volatility and risk-adjusted performance once real-world investment conditions are taken into account.
For asset owners and investment committees allocating capital across Africa’s diverse frontier markets, these differences can have significant implications.
Benchmarks play a central role in institutional investing. They provide the reference point for evaluating manager performance and guiding capital allocation decisions. However, when benchmark construction diverges from how portfolios are actually invested, performance interpretation becomes far more complex.
“Benchmarks are meant to help investors understand what is happening inside their portfolios,” says Tsinonis. “If the benchmark no longer reflects the markets investors are actually exposed to, it becomes much harder to distinguish between investment skill and structural distortions.”
As African capital markets continue to evolve and currency cycles remain a recurring feature of frontier markets, the way those markets are measured is becoming increasingly important.
“For global investors allocating capital to Africa, understanding the difference between theoretical benchmarks and real investment experience is critical,” says Tsinonis. “Ultimately, measurement frameworks need to reflect the realities of investing in these markets, not just the rules used to construct global indices.”