Central Istanbul saw more violence as riot police moved in on protesters

Central Istanbul saw more violence as riot police moved in on protesters and fired tear gas and water cannons. Protesters responded by lobbing Molotov cocktails at armored vehicles.

“Investors are falling out of love very quickly with Turkey,” said London-based market strategist Ishaq Siddiqi from ETX Capital.

turquia-investorsSiddiqi says it’s not just the unrest and violence that has caused investors to flee, it’s also the threat of the U.S. Federal Reserve pulling back on its bond-buying program.

“Emerging markets such as Turkey have been big beneficiaries of easy Fed money so a reduction of that will further dent capital inflows into Turkey,” he wrote in a report.

Siddiqi expects investors will start pulling their money out of all emerging markets, including Turkey, and start putting more to work in developed markets, especially as the U.S. recovery continues and Europe emerges from recession.

Yields on Turkey’s short-term government bonds shot higher and the lira continued to weaken versus the U.S. dollar and the euro.

The Turkish central bank responded Tuesday to the volatility by tightening monetary policy to encourage financial stability and shore up the lira.

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