REUTERS: Thai shares fell on Tuesday after the army declared martial law to restore order following six months of anti-government protests, while Indonesian stocks declined on uncertainty over the outcome of the presidential election in July.
Thailand's SET index fell more than 1.6% to 1,387.62 in early trade but recouped its losses and was down 0.8% by midday amid a mixed reaction to martial law, which the army said was not a coup.
The decline was led by shares of Advanced Info Service and Airports of Thailand, which fell 2.1% and 2.8% respectively.
The Thai baht, which earlier fell as much as 0.5% per dollar, recovered most of its initial losses, with the central bank suspected of intervening to support the currency.
Tuesday's declaration of martial law came after six months of anti-government protests left Thailand without a proper unctioning government, raising concerns about economic policies and stability essential for investor confidence.
Initial panic among investors led them to start selling stocks soon after the declaration.
"The latest action by the Thai military to announce martial law, though seeming negative at first glance, will help limit the risk of political violence," Bangkok-based KGI Securities strategists said in a report.
"However, the degree of upswing should be moderate as SET Index has risen in the past two sessions, and it is possible that the reaction of foreign investors to the martial law will be negative," they said, recommending that traders should hold their positions or pick up shares if the index eases.
Maybank Kim Eng Securities said the tourism and hospital sectors will be affected by the martial law.
"Embassies may increase the degree of travel warnings to Thailand. We recommend to buy on dips."
Indonesian stocks were under pressure due to growing uncertainty over the outcome of the July 9 presidential election.
The Jakarta index fell 2.2% and hit its lowest level since May 9, led by a 5.4% loss in state-owned lender PT Bank Mandiri.
Shares were near a one-year high on Monday but lost all the gains after Indonesia's second-largest party, Golkar, unexpectedly said it would back Prabowo's Gerindra, the main rival of front runner Joko "Jokowi" Widodo.
The rupiah also fell in both, the local and the non-deliverable forwards markets after the presidential election turned into a tight race.
Other South-East Asian markets remained range-bound with Philippine and Vietnamese shares up 0.4% and 0.3% respectively, while Singapore was up 0.1%.
Malaysian shares were 0.1% weaker, falling from a record closing high in the previous session.
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