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

On Thursday, MSCI temporarily halted certain updates to its Turkey equity indices, citing the need for additional time to evaluate market reforms and signaling a possible downgrade if significant improvements are not achieved by mid-2027. Turkey's stock market has attracted investor attention due to issues with free-float calculations and potential coordinated trading in selected stocks.

MSCI's move keeps Turkey's emerging-market classification intact, but a future downgrade to frontier-market status could prompt selling from funds that follow the MSCI Emerging Markets Index. The freeze, which began immediately and is ongoing, impacts changes resulting from index reviews and corporate activities involving Turkish securities.

MSCI arrived at this decision after expressing concerns during its 2026 Market Classification Review about possible coordinated trading via fund holdings linked to certain smaller listed entities. Such behavior could jeopardize the accuracy of free-float estimates and overall market integrity, according to the index provider. Institutional investors must witness credible and persistent enforcement against coordinated trading, as well as transparent disclosure standards that allow for independent verification of the free-float of Turkish securities, MSCI stated.

Turkey possesses a limited set of stocks meeting the size and liquidity criteria for global institutional investors, concentrating capital in a few key companies and amplifying scrutiny over free-float calculations and trading practices. The BIST 100 benchmark is projected for a fifth consecutive weekly decline and has fallen over 20% from its May record high.

Under the freeze, MSCI will refrain from increasing foreign inclusion factors or the number of shares in its indexes, adding securities to the MSCI Turkey Investable Market Index, or advancing securities across size-segment indexes. MSCI indicated that if substantial progress is not observed by June 2027, it could pursue additional measures, such as consulting a potential downgrade of Turkey from emerging to frontier or standalone market status.

MSCI will persist in gathering input from market participants and monitoring the effectiveness of regulatory and enforcement actions. S&P Dow Jones Indices also cautioned in July that Turkey is at risk of a downgrade from emerging to frontier-market status due to concerns over market transparency and other issues.