MSCI freezes Turkish equity index changes, threatens emerging market status

Index provider MSCI said Thursday it is freezing certain index-related changes for Turkish equities and may reclassify Turkey from emerging market status, as a market manipulation scandal threatens the country's listed companies and its position in global indexes.

The allegations first emerged in the fourth quarter of 2025, when investment management firms were suspected of artificially inflating stock prices by concentrating on small, illiquid listed companies with low free-float rates. Turkey's Capital Markets Board, known as the SPK, later said the investments could not be justified by economic realities or by the financial fundamentals of the companies involved.

Fund defaults and a sharp selloff

In September, Pusula Portföy became the first asset manager to report a fund default. Rival Tera Portföy said in the following days that two of its funds had also defaulted. Turkey's benchmark BIST 100 index fell 16.7% during September.

As losses and redemption pressure hit a swathe of investment funds, the SPK ordered the liquidation of 131 investment funds days later. Those funds collectively oversaw assets worth around 1 trillion Turkish lira, or $20.2 billion. On Sept. 21, Borsa Istanbul announced that dozens of stocks at the heart of the scandal would be removed from the BIST 100 at the start of October.

MSCI's conditions

MSCI said its 2026 Market Classification Review had highlighted serious concerns from institutional investors about possible coordinated trading through fund holdings closely affiliated with certain smaller listed companies. It said this undermines the reliability of free-float estimates and market integrity.

The index provider said 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 will not be added to certain MSCI indexes or moved into larger-company indexes. Existing companies also will not receive higher index weightings as a result of changes to their share counts or the proportion of shares available to foreign investors.

MSCI said that if sufficient progress is not evident by June 2027, it 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.

Indonesia also under review

Turkey was not the only country facing scrutiny from MSCI on Thursday. The index provider said it was 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 about the investability of the Indonesian equity market. These included persistent opacity in shareholding structures and suspected coordinated trading behavior.

Indonesia has announced reforms, including enhanced disclosure of shareholders with ownership above 1%, more granular investor classification disclosure, High Shareholding Concentration reporting, and a roadmap toward a minimum free float requirement of 15%. But MSCI said institutional investors have emphasized the need for consistent implementation and evidence of sustained material impact.

MSCI said market participants had indicated that sufficient progress has not been observed consistently across the Indonesian equity market. It said significant concerns remain around market dysfunction, including continued suspected coordinated trading behavior and a lack of evidence of meaningful enforcement. An existing freeze on Indonesian securities in MSCI indexes will remain in place until further notice.

Source: CNBC Top News.