Turkish authorities have taken a series of steps to contain the fallout from a speculative bubble that has rocked the Istanbul stock market and raised concerns over the savings of thousands of investors.
Trading in funds managed by seven asset managers has been frozen, while 130 funds have been ordered to liquidate, the Financial Times reported. The funds have a combined portfolio size of 891 billion lira ($21.4 billion) and about 353,000 investors, according to a source cited by Reuters.
The Central Bank of the Republic of Turkiye has also increased repo funding to 300 billion lira and raised banks’ borrowing limits in the interbank money market 10-fold. The steps are intended to improve access to lira liquidity and reduce the risk of forced asset sales spreading the turmoil to other parts of the financial system.
Authorities move to contain the fallout
The central bank has eased access to lira liquidity and relaxed some lending and collateral requirements to help financial institutions meet their funding needs.
At the same time, Turkey’s Capital Markets Board, known as SPK, suspended trading in funds managed by Tera, Pusula, Hedef, Atlas, A1, Pardus and Bulls Portfoy. The regulator has also referred 38 people to prosecutors over suspected market manipulation, the news report said.
State-owned bank Emlak Katılım has separately started talks to acquire two savings-finance companies linked to the Pusula group. These companies pool customer savings to help finance home and car purchases without conventional interest-bearing loans.
The measures came after Turkey’s benchmark BIST 100 index fell about 8 per cent across Tuesday and Wednesday (local time). The index rose as much as 2.5 per cent in early Thursday trading after the authorities announced the steps, although it later gave up some of those gains.
Emergency meeting as investors rush to withdraw funds
Turkey’s Financial Stability Committee, chaired by Finance Minister Mehmet Simsek, held an emergency meeting on Thursday. The committee said the problem was concentrated in a specific part of the fund market and described it as temporary and manageable. It said the measures would focus mainly on easing liquidity pressures and preventing the turmoil from spreading.
The eight-member committee includes the central bank and the country’s main financial regulators.
The latest sell-off began after Istanbul-based fund manager Pusula Portfoy said some of its funds could not make redemption payments to investors on time. The disclosure prompted retail investors to rush to withdraw their savings, in what analysts described as a “fund run”, the news report said.
Fund management group Tera Portfoy later said two of its funds had also been unable to make redemption payments on time. Another group, Atlas Portfoy, extended the waiting period for investors seeking to redeem some of its funds. The three groups together manage about $29 billion in assets.
How the stock market bubble grew
At the centre of the turmoil are investment funds that, over the past two years, built large positions in related companies whose shares available for public trading were often limited. The concentrated buying pushed up the share prices of these companies. That, in turn, increased the value of funds holding their shares and attracted more investors, bringing in fresh money that could be used to buy more of the same stocks.
At the height of the rally, listed investment company Hedef Holding briefly became Turkey’s second-largest company by market value, behind defence electronics group Aselsan.
The rally began to come under scrutiny in June, when index provider MSCI warned about possible “co-ordinated trading behaviour” involving funds and closely affiliated listed companies, the news report said.
S&P Dow Jones also placed Turkey under review for a possible downgrade from emerging-market to frontier-market status. Local regulators tightened capital-market rules at the end of August.
Investigation adds to pressure
Emre Tezmen, chairman of Tera Holding, one of the companies at the centre of the turmoil, blamed the situation on what he called a “planned, deliberate and organised speculative attack” by “notorious malevolent forces”. In a social media post on Wednesday evening, Tezmen stressed Tera’s “domestic and national” credentials and expressed support for President Recep Tayyip Erdogan.
The market turmoil comes as Turkey seeks to rebuild international confidence in its economy through a stabilisation programme led by Simsek, a former Merrill Lynch economist and strategist. The latest measures are therefore aimed not only at addressing the immediate fund-related stress but also at limiting the risk of wider financial disruption, the news report said.
