Global index provider MSCI has restricted changes to its Turkish stock indexes over concerns about possible coordinated trading involving investment funds linked to smaller companies, warning that Turkey could lose its emerging-market status if it fails to address the problems by June 2027.
The decision, announced Thursday, comes amid growing scrutiny of Turkey’s stock market following a major investment fund scandal that has shaken investor confidence and prompted investigations into suspected market manipulation.
MSCI, a US-based provider of stock market indexes widely followed by international investors, helps major investment funds determine which countries and companies to invest in. Its decision could limit the inclusion of Turkish stocks in widely followed indexes and their ability to gain greater weight in those indexes.
The restrictions took effect immediately and will remain in place until further notice.
At the center of MSCI’s concerns are investment funds with close ties to smaller publicly traded companies. Such funds may have engaged in coordinated buying and selling of shares, potentially creating a misleading picture of how freely those shares can be traded.
For international investors, the concern is that shares appearing to be widely available on the stock market may actually be concentrated in the hands of investors connected to the companies themselves.
This makes it harder to judge how easily shares can be bought or sold without causing sharp price movements, raising questions about the transparency and reliability of the Turkish stock market.
Turkey has introduced new rules intended to address the problem, including changes to how shares held by certain investment funds are counted when determining how much of a company is available for public trading.
But the measures are still relatively new, and their effectiveness remains uncertain. International investors are looking for clearer information about who ultimately owns company shares, stronger oversight of trading activity and evidence that suspected manipulation is being addressed consistently.
The freeze prevents certain Turkish stocks from being newly included in MSCI indexes, moving into higher company-size categories or gaining greater weight through specified index adjustments. It does not prevent investors from buying or selling Turkish shares on Borsa İstanbul.
Turkey currently belongs to MSCI’s emerging-market category, which includes major developing economies such as Brazil, India and South Africa.
Losing that classification could have significant consequences. Many international funds invest according to MSCI’s indexes and a downgrade could force some of them to reduce or sell their Turkish holdings.
For now, Turkey’s classification remains unchanged. But without convincing improvements by June 2027, MSCI could begin a process to move the country into its frontier-market category, generally reserved for smaller or less accessible financial markets, or classify it separately from its main market groups.
The warning comes as Turkey struggles with a major investment fund crisis that has raised questions about stock market oversight and the relationship between investment funds and publicly traded companies.
In September Turkey’s Capital Markets Board (SPK) ordered the liquidation of 131 investment funds managed by seven companies following a wave of withdrawals and a sharp stock market selloff.
The funds held approximately $18.3 billion in assets and affected more than 455,000 investors. Some had invested heavily in a small number of companies, leaving them exposed when share prices fell and investors rushed to withdraw their money.
The crisis triggered investigations into suspected share price manipulation and financial misconduct, with Turkish prosecutors examining transactions involving investment funds, portfolio management companies and their associates.
The turmoil has also raised concerns about whether some investors benefited from coordinated trading or advance knowledge of market developments.
Although MSCI has not directly linked its decision to the recent fund scandal, both have brought attention to the concentration of share ownership and the risk of coordinated trading involving investment funds.
Turkey’s benchmark BIST 100 index has fallen more than 20 percent from its record closing high in May and is heading for a fifth consecutive weekly decline, Reuters reported.
The concerns are not limited to MSCI. S&P Dow Jones Indices, another major international index provider, warned in July that Turkey could also face a downgrade to frontier-market status because of concerns about transparency and other market practices.
MSCI will review Turkey’s progress as part of its annual market classification assessment in 2027, giving Turkish regulators several months to demonstrate that their measures are making the market more transparent and preventing potentially abusive trading practices.
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