MSCI Freezes Turkey Indexes as Fund Turmoil Fuels Scrutiny

(Bloomberg) -- MSCI Inc. is stepping up scrutiny of Turkey’s equity market following a crisis in the country’s fund industry, freezing some index changes and warning that its emerging-market status could eventually be at risk.

The index provider said it implemented a freeze on certain index-related changes for Turkish equities, effective “immediately and until further notice,” according to a statement Thursday. It cited concerns over possible coordinated trading involving fund holdings linked to some smaller listed companies.

If sufficient progress isn’t evident by June 2027, MSCI said it will consider additional measures, including a consultation on potentially reclassifying the MSCI Turkey Indexes from emerging market to frontier or standalone market status. 

The move follows a crisis that rocked Turkish funds. Regulators have cracked down on investment firms that had delivered extraordinary returns by concentrating bets in illiquid, low-free-float stocks, fueling allegations that share prices were being artificially inflated.

The scrutiny triggered a sharp selloff, forcing funds to sell assets to meet redemptions and driving down the same stocks that had powered their earlier gains.

Despite the steps taken by Turkish authorities, MSCI said investors “will need to see credible and sustained enforcement against coordinated trading” as well as disclosure standards that allow independent verification of free-float levels.

Earlier this month, FTSE Russell also flagged similar concerns over free-float data, even as it maintained Turkey’s status as an advanced emerging market. The index provider said it remains in discussions with Borsa Istanbul and the market regulator over the issue.

(Adds MSCI comments in sixth paragraph and details on FTSE Russell’s decision in seventh.)

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