Turkish authorities are taking emergency measures to contain turmoil in the country’s stock market after problems at several investment funds triggered heavy withdrawals and raised concerns about wider financial instability.
The Capital Markets Board has suspended trading in funds managed by seven asset-management companies and ordered the liquidation of 130 funds as regulators seek to prevent the crisis from spreading. The authorities have also referred 38 people to prosecutors over suspected market manipulation.
The crisis intensified this week after Istanbul-based fund manager Pusula Portföy disclosed that some of its funds were unable to meet redemption requests from investors on time. The development prompted a rush by retail investors to withdraw their money and contributed to sharp falls in Turkish equities.
Other fund managers, including Tera Portföy and Atlas Portföy, have also reported difficulties or delays involving investor redemptions. The three groups together manage assets worth roughly $29 billion, increasing concerns about the potential consequences for Turkey’s financial markets.
Turkey’s benchmark BIST 100 index fell by a combined 8 per cent on Tuesday and Wednesday before recovering as much as 2.5 per cent in early trading on Thursday following the authorities’ intervention. The recovery later weakened as investors continued to assess the scale of the problems within the fund market.
The central bank has also eased access to Turkish lira liquidity and adjusted lending and collateral requirements. The move is designed to ensure financial institutions have sufficient funding and are not forced to sell assets rapidly in an already unsettled market.
Authorities are particularly concerned about forced asset sales because they could accelerate falling share prices and increase pressure on investment funds facing redemption demands.
At the centre of the controversy are investment funds that built concentrated positions in shares of companies with relatively limited amounts of stock available for public trading. Strong buying pushed up the value of some of those shares, increasing the reported value of funds holding them and attracting additional investors.
The cycle began to unwind after MSCI, a major global index provider, raised concerns in June about possible coordinated trading involving investment funds and closely connected companies. Turkish regulators subsequently tightened capital-market rules in August.
The Capital Markets Board has now filed criminal complaints against 38 individuals and imposed two-year trading bans on them in connection with suspected manipulation involving shares of three listed companies: Katilimevim, Gundogdu Gida and Destek Finans Faktoring.
The affected shares had recorded substantial gains earlier in the year before recent declines. Katilimevim and Destek Finans Faktoring had each risen by more than 300 per cent year-to-date despite their recent losses, while Gundogdu Gida had gained more than 140 per cent before falling sharply from its July peak.
The government has sought to reassure investors that the problem is concentrated within a specific segment of the financial system and remains manageable. An emergency Financial Stability Committee meeting focused on easing liquidity constraints and preventing the problems from spreading to other parts of the economy.
A state-owned bank has also opened talks to acquire two savings-finance companies linked to the turmoil, in an effort to separate ordinary household savings businesses from the problems affecting investment funds.
The developments come as Turkey attempts to rebuild international confidence in its financial markets under an economic stabilisation programme. The latest market disruption could complicate those efforts if investors become concerned about transparency, liquidity and the effectiveness of financial-market regulation.
For now, authorities are focused on restoring orderly trading, meeting legitimate investor redemption demands and limiting the possibility of the fund crisis developing into a broader financial-sector problem.
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