Outflows from Turkish money market funds surpass $16.87B amid currency volatility

Investor sentiment in Türkiye has taken a sharp hit since Mar. 19 amid rising political uncertainty, triggering a market downturn that weakened the Turkish lira and pressured Istanbul stocks. The volatility has also affected money market funds, which form a significant portion of Türkiye’s mutual funds market.

According to data from the Türkiye Electronic Fund Trading Platform (TEFAS), outflows from money market funds exceeded ₺641.11 billion ($16.87 billion), with 214,485 investors exiting their positions. As a result, the total fund size fell from ₺1.44 trillion to ₺802.21 billion by the close of trading on Mar. 28. The number of investors also declined from 3.80 million to 3.58 million.

Despite this sharp exodus, hedge funds received inflows totaling ₺263.05 billion, bringing the net outflow across all fund categories to ₺378.05 billion ($9.94 billion).

‘Outflows likely shifted into U.S. dollars’

On Mar. 19, the Turkish lira depreciated by more than 12% against the U.S. dollar, falling past the 41 mark. However, following the Turkish central bank’s intervention — selling approximately $25 billion in reserves — the losses were partially reversed, with the exchange rate recovering to the 37 level, marking a more modest 3% depreciation.

Prof. Dr. Hakan Kara, former chief economist of the Turkish central bank, noted a surge in demand for foreign currency. In his post on X, he estimated that a significant portion of the outflows from money market funds shifted into U.S. dollars, amounting to an estimated $8 billion in buyouts.

Money market funds are low-risk investment vehicles that focus on short-term, highly liquid financial instruments such as treasury bills, government bonds with maturities under one year, repurchase agreements, and time deposits. They are designed to preserve capital and offer stable returns, making them a popular choice among conservative investors and institutions managing excess cash with minimal exposure to market fluctuations.

However, despite their low-risk nature, money market funds in Türkiye are not entirely insulated from currency fluctuations — particularly movements in the Turkish lira. Since many of these funds hold lira-denominated assets, sharp depreciation in the lira can erode investor confidence, prompting capital flight to more stable or foreign currency-based instruments.