Turkey Rushes Stability Measures After Fund Liquidity Crunch Rattles Markets

Turkish authorities rolled out a series of measures on Thursday to stabilise financial markets after a liquidity crunch at a small group of investment funds triggered a sharp selloff in the country's stock market earlier in the week.

The central bank increased repo funding to 300 billion lira and raised banks' borrowing limits in the interbank money market tenfold to ensure lira liquidity. The capital markets regulator suspended trading and ordered the liquidation of several investment funds managed by seven portfolio management companies, including Tera Portfoy, Pusula Portfoy and Hedef Portfoy, on the TEFAS electronic fund platform.

The funds slated for liquidation have a combined portfolio size of 891 billion lira ($21.4 billion) and about 353,000 investors, a source with direct knowledge of the matter said.

In a separate move, the Capital Markets Board cut the minimum equity maintenance requirement for margin trading to 20% from 35% until October 2, allowing brokerages to apply the lower threshold in line with their risk policies. The banking regulator also allowed Borsa Istanbul-listed banks temporary flexibility in capital adequacy calculations for share buyback programmes.

Analysts said changes in fund regulation in August had made it difficult for funds holding thinly traded stocks to obtain liquidity amid sharp declines in those shares, forcing them to sell core holdings to raise cash.

Turkey's main stock index dropped more than 5% on Wednesday, renewing scrutiny of the country's capital markets and raising concerns that liquidity strains at a handful of funds could spread. Markets clawed back some losses following Thursday's measures, with the main index up 2.6% on the day, though still down 6.9% since the start of the week — its weakest weekly performance since 19 March 2025. The banking index, which started the day 0.3% higher, accelerated gains and was trading up 8% as of 1207 GMT.

Analysts said it was not yet clear where markets were headed next. "Such a decisive response by the CBRT (central bank) and Turkish regulators provided stock investors with some respite — it's too early to declare that the selloff has run its course," said Piotr Matys, senior FX analyst at ITC Markets.

The Financial Stability Committee, Turkey's top coordinating body for financial-sector risks and crisis response, said after a meeting on Thursday that the problems were concentrated in a specific segment of the fund market and were "temporary and manageable in nature", ruling out broader structural risks.

The turbulence has revived longstanding concerns about concentration and trading practices in Turkey's stock market. Index provider MSCI said in June it remained concerned about shareholder transparency and coordinated trading in Turkey's equity market, adding that a review of the market's treatment could follow if authorities did not make credible progress on reforms.

Tera Portfoy triggered Wednesday's selloff. The company, which manages about $13.7 billion in assets, said on Wednesday it had defaulted on redemption payments in its money market and equity funds, a day after Pusula Portfoy reported similar difficulties.

Cemal Demirtas, general manager for research at Istanbul-based Ata Invest, said the Financial Stability Committee's message that "markets would not be left to deal with the problem alone" had supported Thursday's rebound, adding that further policy steps would be key. "What is being done now points to a broader intervention rather than a temporary fix," he said, adding that the process appeared to be moving in a positive direction from an overall market stability perspective.

For investors, the question is how much of a spillover there will be in a country that has seen periods of financial market turmoil before. "The true extent of interconnected lending and collateral and potential contagion is always hard to predict, but this does not appear to have much to do with macroeconomic conditions and should not create systemic risk," said Hasnain Malik, head of geopolitical risk and emerging market equity market strategy at Tellimer.

Viktor Szabo, portfolio manager at Aberdeen, said the equities turmoil appeared contained for now and was unlikely to undermine confidence in Turkey's broader economic policy framework. "I'm not worried as long as the FX regime and the econ team are in place - and no early election is called."