The historic Suleymaniye Mosque rising above Istanbul's skyline.
Kriangkrai Thitimakorn | Moment | Getty Images
A market manipulation scandal is continuing to rock Turkey, with the country's emerging market status coming under threat and the country's listed companies now at risk of being frozen out of global indexes.
Allegations began swirling in the fourth quarter of 2025 that investment management firms were artificially inflating stock prices by piling into small, illiquid listed companies with low free float rates.
Turkey's Capital Markets Board (SPK) later said the investments in the stocks "could not be explained by economic realities or by the financial fundamentals of the companies concerned."
In September, Pusula Portföy became the first asset manager to report a fund default, with rival Tera Portföy saying in the following days that two of its funds had also defaulted.
Turkey's benchmark BIST 100 stock index plummeted 16.7% in the month of September.
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Deep losses and redemption pressure at a swathe of investment funds saw SPK step in and order the liquidation of 131 investment funds days later. The funds ordered to liquidate collectively oversaw assets worth around 1 trillion Turkish lira ($20.2 billion).
On Sept. 21, Borsa Istanbul announced that dozens of stocks that had been at the heart of the scandal would be removed from the BIST 100 at the start of October.
On Thursday, index provider MSCI threatened to revoke Turkey's status as an emerging market in the wake of the scandal. It said it was applying a freeze on certain index-related changes for Turkish equity securities, effective immediately and until further notice.
"As part of the MSCI 2026 Market Classification Review, MSCI highlighted serious concerns raised by institutional investors about possible coordinated trading through fund holdings closely affiliated with certain smaller listed companies, which undermines the reliability of free float estimates and market integrity," the company said in a statement.
"MSCI noted that it would look for tangible and credible progress, including granular and timely disclosure of beneficial ownership, robust surveillance and enforcement against coordinated trading behavior, and a transparent rules-based framework for identifying and treating securities with structurally distorted free float."
The equity freeze means Turkish companies won't be added to certain MSCI indexes or moved into larger-company indexes. Existing companies won't receive higher index weightings as a result of changes to their share counts or the proportion of shares available to foreign investors.
"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," MSCI added on Thursday.
Indonesia faces EM index exit
Turkey wasn't the only country in MSCI's firing line on Thursday.
The index provider said it was also launching a proposal to reclassify the MSCI Indonesia Indexes to "Standalone Market" status, effectively downgrading Indonesia from emerging market status.
MSCI said it had reported in June that market participants were raising "significant concerns regarding the investability of the Indonesian equity market."
These included "persistent opacity in shareholding structures and suspected coordinated trading behavior," it added.
"While the Indonesian authorities have announced reforms, including enhanced disclosure of shareholders with ownership above 1%, more granular investor classification disclosure, High Shareholding Concentration (HSC) reporting, and a roadmap towards a minimum free float requirement of 15%, institutional investors have emphasized the need for consistent implementation and evidence of sustained material impact from these announcements," MSCI said.
"Market participants have indicated to MSCI that, to date, sufficient progress has not been observed consistently across the Indonesian equity market. Despite the announced reforms, significant concerns remain around market dysfunction, including continued suspected coordinated trading behavior and lack of evidence of meaningful enforcement."
It said an existing freeze on Indonesian securities in MSCI Indexes would remain in place until further notice.