SET sheds 0.6% to 1,396.84

Thai stocks closed down 0.6% on Friday in heavy trade, after a 2.1% drop in the morning in response to Thursday's military coup.

The baht also steadied and was little changed late Friday after falling 0.4% against the US dollar immediately after the coup announcement.

The Stock Exchange of Thailand Index declined 8.37 points from Thursday to close at 1,396.84, down 0.7% from the previous Friday's close of 1,405.26. Turnover was 53.5 billion baht, with 8.93 billion shares traded, as foreign investors continued to sell heavily. The index sank to 1,375.41 shortly after the opening before steadying for the rest of the day.

Among Friday's big losers, reflecting short-term concern about tourism, were Airports of Thailand, which slid 2.4% to a three-month low, and Asia Aviation, which controls the budget airline AirAsia, which dropped 1%. SC Asset, the property developer controlled by the Shinawatra family, slumped 3.2%.

The local market is up 7.5% from the end of 2013.

Foreign investors were net sellers on Friday of 6.77 billion baht worth of Thai shares, bringing their net sales for the month to 22.73 billion baht. For the year to date they are net sellers of 27.65 billion.

Overseas funds have pulled 19.97 billion baht from Thai stocks in the four trading days after martial law was declared on Tuesday.

Local institutions were net buyers on Friday of 858.76 million baht and brokers bought 350.66 million. Individual investors looking for bargains were net buyers of 5.56 billion baht. 

"We view the current military coup as likely overall positive as it creates a more stable environment," said Mark Mobius, a veteran foreign investor who oversees about $50 billion as Templeton Emerging Markets Group's executive chairman.

"The prognosis for Thailand is good given that direct foreign investors want to see stability."

World stock markets were mostly higher on Friday but gains in Europe were tempered as a polarised Ukraine braced for weekend elections.

In early European trading, Germany's DAX rose 0.2% and France's CAC 40 rose 0.1% while the FTSE 100 in London shed 0.2% on local factors, notably victories by anti-Europe politicians in local elections.

Dow and S&P futures were up 0.1%, pointed to more modest gains on Wall Street before the Memorial Day long weekend. Elsewhere in Asia, Japan's Nikkei 225 closed up 0.9% at 14,462.17 after the dollar climbed to near 102 yen overnight. A weaker yen is a plus for Japan's export manufacturers.

Hong Kong's Hang Seng gained 0.5% to 22,965.86 and Australia's S&P/ASX 200 added 0.2% to 5,492.80. South Korea's Kospi rose 0.1% to 2,017.

In Bangkok, the SET50 index of blue chips ended at 944.13 points, down 6.46, on turnover of 33.46 billion baht, and the SET100 fell 14.45 points to 2,071.74 in trade worth 40.55 billion. The SETHD index of high-dividend shares lost 6.61 points to 1,121.13, with turnover of 13.73 billion baht. The Market for Alternative Investment was off 2.48 points to 419.56, with transaction value of 1.1 billion baht.

In the currency markets, the baht was trading late Friday in Bangkok at 32.60/62 to the dollar, compared with 32.56/58 on Thursday and 32.48/51 a week earlier.

"We are still cautious on both the baht and Thai equity as we still need to see whether the military can eventually hand over power back to the people," said Yonghao Pu, the Hong Kong-based chief investment officer for Asia Pacific at UBS Wealth Management.

The coup is a "stabilising factor" in the short term, he said.

"The baht has held up pretty well despite all the political challenges," said Sanjay Mathur, head of research and strategy for Asia excluding Japan at Royal Bank of Scotland in Singapore.

"The fact that its broader fundamentals are in shape has obviously helped the baht, but I think the biggest issue for Thailand right now is they need to revive growth."

The baht has dropped 0.7% versus the dollar in May, making it the worst-performing currency in Asia. After the last coup was announced on Sept 19, 2006, the currency weakened 1.4% the next day before rebounding 1% in the following trading session. The baht ended that year 4.3% stronger than it was prior to the transfer of power.

The baht may weaken to 33 per dollar "in the next couple of sessions", said Frances Cheung, head of Asian rates strategy at Credit Agricole in Hong Kong. Mizuho Bank senior economist Vishnu Varathan said it may drop to 33.50.

The stock market could fall “on a knee-jerk reaction to heightened perceived political risk, but it should be an opportunity to start buying near the point of maximum pessimism,” said Alan Richardson, whose Samsung Asean Equity Fund beat 96% of peers tracked by Bloomberg in the past five years.

“We are approaching the end game to the political crisis.”