Turkey Orders Liquidation of 130 Speculative Funds Amid Market Drop

Turkey's Financial Stability Board has ordered seven asset management companies to halt fund transactions and issued liquidation orders for 130 funds amid concerns over speculative fund bubbles. The move follows a sharp 8% drop in the BIST100 index over two days starting May 15, triggered by fears of mass redemptions.

The sell-off was sparked when major asset manager Pusula announced it could not pay redemption proceeds on time to some investors. Tera also reported delays in paying redemption for two funds, while Atlas extended waiting periods for fund redemptions. Combined assets under management at these three firms total $29 billion (approximately 40 trillion won).

These funds had concentrated purchases of low-liquidity stocks over the past two years to drive up prices. As fund net asset values rose, new investors entered, allowing further stock purchases with fresh capital. However, this pattern unraveled after Morgan Stanley Capital International warned in June that 'collusive behavior' might exist between funds and listed companies. Mass redemption attempts led to trading halts as asset managers couldn't sell enough shares of low-liquidity stocks.

Turkey's central bank announced it would ease lending and collateral requirements for financial institutions to help maintain liquidity, preventing forced asset sales at fire-sale prices during the market downturn.