Turkish stocks slide in ‘fund run’ as investors withdraw $1bn

Turkish stocks fell sharply on Wednesday after one of the country’s biggest fund managers failed to meet investors’ redemption requests and authorities grappled with a speculative boom caused by what index provider MSCI has called “co-ordinated trading” on the local bourse.

The benchmark BIST 100 index fell more than 5 per cent, extending a more than 2 per cent drop on Tuesday, with retail investors withdrawing as much as $1bn from investment funds during the day, according to Fintables fund-flow data cited by Bloomberg.

The sell-off was triggered on Tuesday when Istanbul fund manager Pusula Portföy, which had $13bn under management at the end of August, said that some of its money market and investment funds could not meet redemption requests from their investors.

But analysts said the underlying problem was much broader. Over the past two years, they said, some local funds had bought shares in companies related to the funds through subsidiaries, often with tiny amounts of their shares available on public markets. Such concentrated buying drove up the companies’ stock prices, inflating the net asset value of funds that own them.

Spectacular reported returns then attracted new investors, providing fresh money with which to buy the same or related stocks.

Two prominent Pusula funds surged 164 per cent and 144 per cent respectively in the first seven months of 2026 alone. Another fund manager, Tera Portföy, the asset-management arm of Tera Group, made even more spectacular returns. Tera founder Emre Tezmen has said the group operated within regulations.

Now, however, the trade that propelled some Turkish funds to extraordinary heights may be going into reverse, as redemptions force funds to raise cash and falling share prices depress fund values, leading to more investor withdrawals.

“This is a self-inflicted, 1990s-style emerging-equity market crisis,” said Emre Akcakmak, a Dubai-based portfolio adviser at asset manager East Capital.

“The growth of these fund structures has long been among the best-flagged risks in the market, but the decisive regulatory response arrived only after the MSCI [warning],” he added. “What we’re seeing now is effectively a ‘fund run’, with investors redeeming due to liquidity fears.”

Tens of thousands of retail investors may be affected. At the end of August, Pusula had roughly 241,000 investment accounts while Tera Group, which is in the middle of takeover talks with Pusula, had over 500,000 accounts. Together, the two companies managed around $27bn at the end of August.

The market shakeout comes at a particularly awkward moment for Turkey, which is trying to re-establish its international economic credibility under a stabilisation programme led by finance minister Mehmet Şimşek, a former investment banker.

It could also throttle an important source of finance for Turkish companies as tight monetary policy aimed at bringing down inflation — currently running at 31.5 per cent a year — has kept borrowing costs exceptionally high.

As a result, many Turkish companies have turned to the equity market for finance. In the first eight months of 2026, 34 companies completed IPOs worth TL82.4bn ($1.7bn), compared with TL45.2bn in the whole of 2025.

 Şimşek himself has said he wants Turkey to shift away from bank finance to a greater reliance on capital markets. Non-residents held about $41bn of Turkish equities as of September 4, according to central bank data.

The problem gained international prominence in June, when MSCI warned that international investors had identified “recurring instances of possible co-ordinated trading behaviour” involving fund holdings affiliated with smaller listed companies.

Unless “tangible and credible progress” was evident by its November review, MSCI said it could launch a consultation on Turkey’s treatment in its indices — a process that could ultimately lead to a downgrade from emerging to frontier market status.

Turkish authorities have only recently become explicit about the risks. Şimşek said last November that the government knew “manipulation” was taking place and promised tougher regulation. Last week, justice minister Akın Gürlek said criminal market manipulation “should not go unanswered”.

Crucially, however, Gürlek added that authorities should also avoid “unnecessarily alarming” markets because so many Turkish citizens were invested in them.

This week, however, tougher rules — introduced by the capital markets board in late August — have forced funds to begin reducing concentrated positions. Ensuing redemptions have accelerated the process, meaning funds may be forced to crystallise losses, aggravating the market turmoil officials had sought to avoid.

Speaking on Wednesday as the stock market dropped, Şimşek told a television interviewer that “the non-bank financial sector needs additional regulation and supervision” — although he did not refer directly to Pusula or the market turmoil.

“This is perhaps Şimşek’s biggest test so far,” said Timothy Ash, senior sovereign strategist at RBC BlueBay Asset Management and a longtime Turkey watcher. “But I have confidence in him.”