Thailand calm, but uncertainty looms large

Bangkok wakes up to second day under martial law

Thailand was calm on Wednesday, a day after the military declared martial law but uncertainty loomed over a country that has been rocked by six months of streets protests and no proper functioning government.

"Even though the military is in control right now there is a lot of uncertainty," said Roberto Herrera-Lim, managing director at Teneo Holdings in New Jersey and who covers political and business risk in Southeast Asia.

"There is no common ground between the two [political] sides, so this is going to be difficult and it is going to create uncertainty for the markets," he added.

Read MoreIs martial law the last straw for Thai investors?

Thai army chief, General Prayuth Chan-ocha, on Tuesday stressed that martial law was not a prelude to a military coup and that the military has intervened to restore order.

A power struggle between supporters of former Thai Prime Thaksin Shinawatra and the royalist establishment have paralyzed the country, which is currently being led by a caretaker government until fresh elections take place.

Read MoreThai interim PM says aims for Aug. 3 election

Passersby pose for a photo with Thai soldiers standing guard on a Bangkok street after martial law was declared on May 20, 2014.
Getty Images

According to a report by Reuters, 28 people have been killed and 700 injured since the anti-government protests began last November.

"The next step is to try to bring rival parties to talk in peace. There cannot be talks if there is no peace," Prayuth Chan-ocha said on Tuesday.

"The real game here is long-game. The military has been trying to bring these two sides to some kind of reconciliation," said Dane Chamorro, managing director for Southeast Asia at Control Risks. "I question if that is possible… It's not going to be something that will happen overnight."

In Bangkok, CNBC correspondent Sri Jegarajah described the mood in the Thai capital as quiet and relaxed with some residents and tourists taking "selfies" with troops.

Martial law is a "sincere effort on behalf of the military to calm things down… I am personally relieved," one Bangkok-based executive told Jegarajah.

More paralysis?

Sean King, senior vice president at Park Strategies, told CNBC he did not think Thailand was headed towards a civil war but expected more paralysis.

"I don't think Thailand is on the brink of civil war which is why martial law was jumping the gun," he said. "Now that the army is taking control they should set a date for an election and whoever wins, wins."

Expect more paralysis in Thai politics: Expert

Data earlier this week provided further signs that months of political instability have taken a toll on Thailand's economy, which has proved generally resilient to bouts of turmoil in the past.

The Thai economy shrank 2.1 percent in the first quarter compared with the previous three months, against expectations for a 1.6 percent contraction.

Read MoreThai economy shrank 2.1% in first quarter

Analysts said they remained concerned about the outlook for foreign investment.

"The impact on the economy can be very deep and it can be long-term," said Herrera-Lim at Teneo Holdings.

"The Japanese are big investors in Thailand and they are worried. Thailand cannot stand still, it is threatened by competiveness from Vietnam, the Philippines, Indonesia," he added. "So if the political situation is not stabilized, some of these investors may not stay in Thailand long term."

According to Thailand's Board of Investment, the value of Japanese investment projects stood at 562 million ($173 million) Thai baht in 2013, down from 872 million baht in 2012.