Turkish stocks are on the path to a bear market following a recent fund crisis that erased billions of dollars from companies listed on the Istanbul Stock Exchange. The Borsa Istanbul 100 index fell by 1.7% to 12,084 points on Wednesday morning – 20% below the peaks reached in early May. If the market closes at these levels, the index will enter bear territory. In dollar terms, the BIST 100 has already lost about 25%.
The sell-off wiped $100 billion from the Turkish market in September, with the index losing more than 15% for the month – the worst performance since 2020. The crisis began with liquidity issues at investment funds holding large positions in relatively illiquid stocks. When funds managed by Tera Portfoy Yonetimi and Pusula Portfoy Yonetimi were unable to meet redemption requests, the sell-off spread across Borsa Istanbul, despite steps taken by regulators and the central bank. Since then, 131 funds have been liquidated, and several financial industry executives have been detained or arrested.
A special council has been established to oversee the liquidation of the affected funds. Authorities have stated their intention to quickly implement administrative and legal changes to ensure that capital markets operate on a more sustainable basis. However, specific timelines and the content of these measures have not yet been disclosed. At the end of August, regulators had already tightened rules for funds holding concentrated positions in companies with a small free float. Nevertheless, many investors believe these steps are too late: signals of abnormal returns at some management companies had appeared earlier.
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