Turkey faces threat of MSCI downgrade to ‘frontier’ market

Turkey seems to be on a loose soil as far its economic ties are concerned. Following a series of measures taken by the country’s authorities, it could be demoted to “frontier” status by MSCI, one of the world’s most important providers of indices.

According to sources, MSCI had announced that it would be conducting a review towards the end of June regarding the status that Turkey holds as a member of the emerging market index. The status revision would take place if the indices benchmark organization analyses the condition to worsen.

To put things in perspective, Turkey’s standing on the MSCI index has taken a hit in the last few years. This could be a result of the falling Lira (Turkish currency) against the US Dollar. And due to this, the country stands in the brink of being demoted to the position of the ‘Frontier market’, which puts it in the league of Morocco and Vietnam.

Commenting on this news, Emre Akcakmak, who is the portfolio manager of East Capital, said that the move might cause Turkey to lose around $5 billion worth of equity, which also includes $2-$3 billion in passive investments. He went on to say that this could be a loss of prestige for the country.

Going in-depth in the news, MSCI said that this decision has been taken after the country has implemented multiple bans on various short selling and stock-lending. However, according to the local authorities of Turkey, all the strict measures were taken to curb the manipulation of the financial market of the country.

However, Mr. Akcakmak even mentioned that the chances of demoting Turkey’s status could be slim as it could just be a gentle warning from MSCI. However, if the local authorities in the country continue to have such radical reforms, the indices benchmark organization could step in and revise the status.

Turkey’s Lira has witnessed plummet in the last half a decade or so. From around 2.5 Lira against 1 US Dollar in 2015, the Turkish currency lags at just under 7 Lira against a dollar in June 2020.