Turkey’s weight in MSCI Emerging Markets Index reaches record low

The share of Turkish stocks in the MSCI Emerging Markets Index fell to a record low last week when its weight dropped to 0.5 percent on September 7 from two percent, an e-mailed note by TEB Yatirim showed. Turkey entered the indices on September 1, 1989. The MSCI EM Index is seen as the major benchmark for emerging market stocks for multiples, performance, discounts and premiums by investment bankers. Institutional investors closely follow the weight in those indices to better see the positioning (hold, neutral, sell) for those markets, Isik Okte a TEB Yatirim strategist, said in the note.

MSCI has a proprietary algorithm that selects certain stocks according to their free float rates and includes in its country indices. There are 24 stocks from Turkey included in the EM index.

Turkey had a 2.1 percent weight in the MSCI indices in 1989 when it was first covered. In September 1989, it was listed in the Emerging Markets Index. The weight later went up and down over the years and dropped to 1.5 percent as of March 2015, slightly gaining momentum in March 2016 to 1.6 percent but again dropping to 1.3 percent at the end of June 2016. It was only 0.7 percent at the end of July 2018.

There are reasons for the 76 percent fall, Okte notes. The sell-off of up to 86 percent of Turkish bank stocks after the Bernanke milestone (XBANK) and addition of Chinese stocks to the MSCI in 1996, starting at only 0.5 percent but now up to 30.9 percent, are the main reasons behind the fall, he says.