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Why Thai crisis won't hurt the rest of Southeast Asia

Thai soldiers patrol near government buildings on May 23, 2014 in Bangkok, Thailand.
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Political instability in Thailand has dented the economy, but the risk of contagion to the rest of the region should be minimal with some countries even standing to benefit, analysts told CNBC.

Last week, Thailand's army chief General Prayuth Chan-ocha declared the military had seized power in a coup, following more than seven months of political protests and two days of martial law. Thailand's economy escaped previous bouts of turmoil relatively unscathed, but this time first quarter gross domestic product contracted a much-larger-than-expected 2.1 percent on quarter, prompting many economists to cut their 2014 growth forecasts.

Thailand's equity market has held up well, however. While stocks fell nearly 19 percent from late October (when protests started) to early January, they have since recovered 15 percent.

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"The negative economic impact of Thailand's political crisis should stay contained within the country," said Krystal Tan, Asia economist at Capital Economics.

"Investors recognize that Thailand's political instability is an isolated case and that most countries in the region have robust external finances, which should further limit the risk of contagion, " she added.

While foreign capital has been flowing out of Thailand since November, flows into its ASEAN peers have remained positive, said Tan.

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"Similarly, Emerging Asia's average stock market performance has been better than other emerging regions since November, even as Thailand's equity market struggled," she added.

But other analysts told CNBC that Southeast Asian economies could take a hit from Thailand's crisis.

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"It has had a negative impact on tourism to the region, as Asia is sold as a package so if there is trouble in one country it affects the perception of the whole region," said Hak Bin Chua, Asean economist at Bank of America Merrill Lynch.

Chua added that financial hubs like Singapore, which manage regional investment flows, could also be negatively impacted as foreign direct investment and portfolio flows into Thailand drop.

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However, Capital Economics' Tan noted that losses from Thailand's political turbulence could benefit neighboring economies through tourism revenue and fresh foreign direct investment as people readjust investment and travel plans.

Tan highlighted Vietnam and Malaysia as countries that could see increased tourism, while Indonesia and the Philippines could make attractive investment alternatives given recent improvements in their economic fundamentals.

Furthermore, foreign companies could start re-thinking their long-term commitments to Thailand, Capital Economics said, citing Japanese automaker Honda's recent production cut at its Thai unit and the delayed start-up of its new $530 million plant, as examples.

Read MoreCoup may bring relief to corporate Thailand

Bank of America's Chua told CNBC that reports of companies shifting electronics production out of Thailand into more stable countries like Malaysia were emerging.

Vishnu Varathan, market economist at Mizuho Corporate bank, said investors are considering relocating their manufacturing bases to the greater Mekong region, including the likes of Myanmar, Laos and Cambodia in the long term, while in the short term countries like Vietnam and the Philippines, where infrastructure is already established, are more likely destinations.