Turkish stocks slide over threat to emerging-market status

• All-share index loses 33% in month
• MSCI ‘considers reclassification’
• Authorities seize 131 funds

Turkey’s stock market fell further after a global index provider warned it could lose emerging-market status, adding to concerns about a fund-management scandal.

Borsa Istanbul’s all-share index fell 33 percent over the past month, leaving it down 24 percent since the start of the year and more than wiping out gains from earlier this year.

The index provider, MSCI, said in a statement last week that it had frozen a review of some of Turkey’s equity indices until June 2027. It said it needed time to assess whether reforms promised by Turkish authorities would improve transparency and market accountability.

MSCI classified Turkey as an emerging market but warned it could downgrade that status.

“MSCI will continue to monitor the Turkish equity market closely as to the effectiveness of rule changes and enforcement measures,” it said.

“Should sufficient progress not be evident by June 2027, MSCI will consider additional measures, including a consultation on a potential reclassification of the MSCI Turkey Indexes from Emerging Market to Frontier or Standalone Market status.”

Mehmet Şimşek, Turkey’s finance and treasury minister, sought to reassure markets and MSCI. He said work to tighten oversight and improve transparency was well advanced, local media reported.

“We plan to finalise the legal regulations to bolster the fight against capital market crimes by the beginning of 2027,” he said. “Our goal is to establish a transparent, reliable and efficient capital market where investor rights are protected.”

The BIST 100 fell 3 percent the day after MSCI issued its statement and a further 0.7 percent in the first trading session on October 19. The all-share index fell more sharply.

Iris Cibre Lostar, a financial analyst, told AGBI that MSCI’s stance was negative because market professionals had hoped reforms introduced in August to improve transparency would prompt a more positive statement.

“This means an ambiguous process will continue until June, creating a climate that is not appealing for foreign investors despite share prices having fallen to very reasonable levels,” she said.

Much of the downward pressure came after authorities seized 131 funds in mid-September following an announcement that the asset management companies operating them could not meet investors’ withdrawal requests.

Ratings agency S&P added to market uncertainty by failing to issue a report on Turkey’s sovereign credit on the evening of October 16.

Further reading:

• Turkish markets feel heat from asset management meltdown
• Turkish stocks extend losses as fund crisis deepens
• High rates and inflation deter foreign investment in Turkey

“I think S&P is waiting for this chaotic situation to pass, though it may have also bypassed making a decision because conditions have not changed much since its last report issued in April,” Cibre Lostar said.

In its April statement S&P maintained its BB-/B long and short-term sovereign credit ratings for Turkey in foreign and local currencies. The long-term rating was three notches below investment grade. S&P warned it could lower its rating if pressure increased on Turkey’s balance of payments, financial stability or government finances.