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Turkish authorities have frozen trading in funds run by seven asset managers and ordered 130 funds to be liquidated, as part of efforts to contain the fallout from a speculative bubble that has shaken the Istanbul stock market and threatened the savings of thousands of investors.
The central bank also loosened access to lira liquidity to prevent forced selling, a state-owned bank opened talks to buy two savings-finance companies linked to the turmoil, and the capital markets regulator referred 38 people to prosecutors over suspected market manipulation.
Four of the most senior figures at four of the investment groups that lie at the centre of their investigation — Pusula, Tera, Hedef and Destek — have been taken into custody or arrested, Istanbul prosecutors said.
The market shakeout comes at an awkward moment for Turkey, which is trying to rebuild its international economic credibility under a stabilisation programme led by finance minister Mehmet Şimşek, a former Merrill Lynch economist and strategist.
Turkey’s benchmark BIST 100 stock index, which fell a combined 8 per cent on Tuesday and Wednesday, rebounded 3 per cent on Thursday.
“The problem is concentrated in a specific segment of the fund market and is temporary and manageable in nature,” Turkey’s Financial Stability Committee, which is chaired by Şimşek, said after an emergency meeting on Thursday morning.
“Measures will primarily focus on easing liquidity constraints and preventing contagion risk,” said the eight-member committee, which brings together the central bank and the country’s main financial regulators.
The last time the committee called a comparable emergency meeting was in May, after a court removed the leadership of Turkey’s largest opposition party, triggering steep market falls. It also convened in March as the Iran war convulsed global financial and energy markets.
This week’s sell-off was triggered when leading Istanbul fund manager Pusula Portföy said that some of its funds could not meet redemption payments to investors on time.
Alarmed retail investors rushed to withdraw their savings in what analysts called a “fund run”. A second fund management group, Tera Portföy, said two of its funds had also been unable to make redemption payments on time, while a third, Atlas Portföy, extended the time investors must wait to redeem some funds. Assets managed by the three groups totalled roughly $29bn.
Turkey’s financial authorities appear to be taking a three-pronged approach to contain the problem, analysts said.
First, the central bank eased lending and collateral requirements so that Turkish financial institutions had ample access to liquidity and were less likely to be forced to sell assets into a falling market.
Second, the Capital Markets Board, or SPK, halted buying and selling of funds run by investment firms Tera, Pusula, Hedef, Atlas, A1, Pardus and Bulls Portföy.
Third, authorities appear to be trying to isolate ordinary household savings businesses from the turmoil surrounding the investment funds, through what analysts called a Treasury-backed bailout.
State-owned Islamic participation bank Emlak Katılım said its savings-finance subsidiary had opened talks to acquire two companies within the Pusula group that pool customer savings to finance home and car purchases without conventional interest-bearing loans.
At the heart of the market turmoil lies a group of investment funds that over the past two years have built concentrated positions in related companies that often had only small 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 owned them. It also attracted more investors to the funds, providing fresh money to buy more related stocks.
At the peak of the boom, listed investment company Hedef Holding briefly became the stock market’s second-largest company by market capitalisation, behind defence electronics group Aselsan.
The cycle began to break down after index provider MSCI warned in June about possible “co-ordinated trading behaviour” involving funds and closely affiliated listed companies. S&P Dow Jones separately placed Turkey under review for a possible downgrade from emerging to frontier market status. At the end of August, local regulators tightened capital-market rules.
Emre Tezmen, chair of Tera Holding, one of the companies at the centre of the storm, blamed the turmoil on what he described as a “planned, deliberate and organised speculative attack” by “notorious malevolent forces”.
In a social-media statement posted on Wednesday evening that has since been viewed 11mn times, he stressed what he called Tera’s “domestic and national” credentials and expressed strong support for President Recep Tayyip Erdoğan.
Tezmen and 47 other related parties now face a foreign travel ban as part of the investigation, officials said.