MSCI freezes certain Turkey index changes, warns of potential market downgrade

MSCI on Thursday froze certain changes to its Turkey equity indexes, saying it needed more time ‌to assess market reforms and warning of a potential downgrade if sufficient progress was not made by mid-2027. Turkey's equity market has faced investor scrutiny over free-float calculations and suspected coordinated trading in some stocks.

MSCI's decision leaves Turkey's emerging-market status unchanged, but a future ‌downgrade to frontier-market status could trigger selling by funds that track the MSCI Emerging Markets Index. The freeze took effect immediately ‌and will remain in place until further notice, affecting changes stemming from index reviews and corporate events involving Turkish securities.

MSCI said the decision followed concerns raised during its 2026 Market Classification Review over "possible coordinated trading through fund holdings closely affiliated with certain smaller listed companies." Such activity could undermine the reliability of ⁠free-float estimates ​and broader market integrity, the ⁠index provider said.

"Institutional investors will need to see credible and sustained enforcement against coordinated trading, and disclosure standards that enable independent verification of the free float ⁠of Turkish securities," MSCI said. Turkey has a relatively small pool of stocks that meet the size and liquidity requirements of global institutional investors, ​concentrating capital in a handful of names and increasing scrutiny of free-float calculations and trading activity.

The benchmark BIST 100 ⁠is on track for a fifth straight weekly decline and is down more than 20% from its record closing high in May. Under the freeze, MSCI ⁠will ​not increase foreign inclusion factors or the number of shares used in its indexes, add securities to the MSCI Turkey Investable Market Index, or make upward migrations across size-segment indexes.

MSCI said that if sufficient progress was not evident by June ⁠2027, it could take further steps, including consulting on a potential downgrade of Turkey from emerging-market to frontier- or standalone-market status. It ⁠will continue seeking feedback ⁠from market participants and monitoring the effectiveness of regulatory and enforcement measures.

S&P Dow Jones Indices also warned in July that Turkey risked a downgrade to frontier-market status from emerging-market status over market transparency ‌and other concerns.