Turkey's BIST 100 enters bear market after 131 investment funds face liquidation

Market rout and fund liquidations

Turkey's benchmark BIST 100 index entered a bear market on Wednesday after falling 2.79%, bringing its total decline from its 11 May peak to more than 20%. The index finished September down 16.65%, registering its worst monthly performance since 2008. Selling pressure accelerated in mid-September after investment funds with large positions in thinly traded shares faced liquidity shortages. To fulfill escalating investor redemption requests, fund managers sold off liquid holdings, accelerating losses across the broader equity market. On 17 September, the Capital Markets Board (SPK) ordered the mandatory liquidation of 131 investment funds managing over $20 billion on behalf of 455,758 retail investors.

Investigation into market manipulation

Judicial authorities opened an inquiry into suspected price manipulation, alleging that investment funds were used to accumulate illiquid stocks and artificially inflate prices by up to 100 times. By late September, prosecutors identified 217 suspects in the case, placing 56 individuals in pre-trial detention. The investigation targets fund managers, financial executives, and corporate officers linked to abnormal price movements. Justice Minister Akın Gürlek described the structures as Ponzi-style arrangements that depleted domestic household savings.

Divergence between large caps and secondary stocks

The market downturn disproportionately impacted smaller equities outside the core benchmark. The XTUMY index, which tracks 484 companies outside the BIST 100, dropped approximately 35% during September, marking its sharpest monthly loss in Turkish liras since its inception in 2009. The BIST 30 blue-chip index declined 9.8% over the same month. Losses among the remaining 70 companies in the BIST 100 were severe, with 15 constituent firms shedding between 50% and 90% of their market value during September. During the week ending 18 September, the BIST 100 dropped more than 8%, its steepest weekly decline since March 2025.

International exposure and political fallout

The turmoil spread to foreign institutional holdings. Norway's sovereign wealth fund, Norges Bank Investment Management (NBIM), held nearly 2 billion Norwegian kroner (about $208 million) across 10 Turkish companies named in the investigation as of 30 June. These positions represented almost 10% of the fund's 20.4 billion kroner Turkish equity portfolio. NBIM held an approximate 2% stake in Istanbul-based electrical equipment manufacturer Astor Enerji, whose shares dropped 41%.

The scandal caused political repercussions in Ankara ahead of the new parliamentary term. Former ruling Justice and Development Party (AKP) deputy chair Fatma Betül Sayan Kaya resigned her party posts after the Istanbul Chief Public Prosecutor's Office ordered a freeze on her assets during an investigation into unlawful capital market transactions. President Recep Tayyip Erdoğan met on Tuesday with Vice President Cevdet Yılmaz, Treasury and Finance Minister Mehmet Şimşek, and regulatory chiefs to evaluate market stability.

The problem is limited to a small segment of the capital market, and there is no risk of contagion to the country's financial system.

Opposition Republican People's Party leader Özgür Özel calculated total market losses at 3.5 trillion liras (roughly $90 billion), comparing the figure to the economic impact of the 2023 earthquake.

The loss in the stock market currently stands at 3.5 trillion liras. The money remaining in the 131 funds placed under liquidation amounts to 800 billion liras. The cost of this looting to the economy reaches 90 billion dollars.