After a crisis erupted in Turkey's fund management industry, MSCI is intensifying its scrutiny of the Turkish stock market, having frozen certain index adjustments and warning that Turkey's emerging market status could ultimately be lost.
The index provider stated in a declaration on Thursday that it has imposed a freeze on certain index-related adjustments involving Turkish stocks, with the measure taking "immediate effect until further notice." MSCI said the move stems from concerns that some funds' holdings in smaller listed companies may involve coordinated trading.
MSCI indicated that if sufficient improvement is not seen by June 2027, it will consider taking further measures, including launching a consultation on whether to reclassify the MSCI Turkey Index from "emerging market" to "frontier market" or "standalone market."
A previous crisis dealt a heavy blow to Turkey's fund industry. Regulators have launched a crackdown on certain investment firms. These firms achieved abnormally high returns through concentrated bets on stocks with low liquidity and low free-float ratios, triggering allegations that share prices were artificially inflated. The regulatory scrutiny sparked a sharp market sell-off, forcing funds to sell assets to meet redemptions, and the stocks that had previously driven these funds' outsized returns also plummeted.
Although Turkish authorities have already taken measures, MSCI stated that investors "still need to see credible, sustained enforcement action against coordinated trading," as well as disclosure standards that allow for independent verification of free-float ratios.
Earlier this month, FTSE Russell also raised similar concerns about free-float data, though it maintained Turkey's "advanced emerging market" status. The index provider said it is still in consultations with the Istanbul Stock Exchange and market regulators on this issue.
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