MSCI's freeze unlikely to lead to demotion for Türkiye — But, let's face it, this is not the best case

MSCI announced a freeze on the MSCI Türkiye indices last night (no new inclusions, changes in free float, etc.) at the same time as it announced a consultation on Indonesia's potential move to Standalone Market status. We continue to believe the chance that Türkiye is moved to Standalone or Frontier status is incredibly low for two reasons: first, the government is making the changes that MSCI has asked for; and, second, we fully expect that MSCI's consultation process, if triggered, would confirm that EM investors do not want Türkiye removed from the EM index. On our estimates in CEEMEA Strategy, Türkiye's removal from the EM index would result in c US$3.5bn in passive outflows. Since September, foreign outflows are $660m, but foreign ownership as a percentage of the float is up from 27.6% to 33.2%, a four-year high. This paradox is a function of higher foreign ownership in big cap stocks, which have massively outperformed small caps, with the BIST30 (XU030) -12.0% and the Banks sub-i