Karachi – The Pakistan Stock Exchange (PSX) experienced a significant downturn this past week, influenced by geopolitical tensions stemming from conflict in the Middle East and disputes along the western border.
Market Plunge and Partial Recovery
Trading opened on Monday with a historic decline for the benchmark KSE-100 index, losing over 16,089 points – a 9.57 percent drop – and resulting in Rs1.7 trillion in losses for equity investors. This was driven by fears of a prolonged war in the Gulf. While bargain-hunting on Tuesday and Thursday led to a partial rebound, overall market sentiment remained fragile, further impacted by security concerns following Pakistan’s airstrikes in Afghanistan.
Geopolitical and Economic Factors
The instability in the Middle East, attributed to conflict, has disrupted oil supplies and driven up energy prices. In response, the government has implemented contingency measures, including weekly reviews of petroleum prices and measures to conserve oil, such as encouraging work-from-home arrangements and online classes.
Investor Behavior and Market Trends
Foreign investors were net sellers during the week, with foreign corporates offloading $25.5 million in equities and mutual funds selling $54.5 million due to redemption pressure. Domestic institutions, including banks ($36m), insurance companies ($15.7m), and local corporates ($14.3m), provided some counter-support.
Inflation rose to 6.98 percent year-on-year in February, the highest level since October 2024. Exports decreased by 8 percent year-on-year to $2.3 billion, while imports fell by 1.6 percent to $5.3 billion, resulting in a trade gap of approximately $3 billion. Pakistan’s trade deficit widened to $2.98 billion in February, increasing 8 percent month-on-month and 25 percent year-on-year.
Sector Performance and Debt
Despite the volatility, market activity remained relatively strong, with an average daily trading volume of 658 million shares and a value of Rs36.2 billion. Cement despatches increased by 12.53 percent year-on-year, while fertiliser demand declined by 28 percent. The government raised Rs581.7 billion through a treasury bill auction, with yields increasing across all tenors. Pakistan’s total public debt rose by 1 percent month-on-month to Rs79.3 trillion.
Looking Ahead
Analysts suggest the market’s future performance will likely depend on developments in the Middle East and the State Bank’s upcoming monetary policy announcement. The KSE-100 index is currently trading at a price-to-earnings ratio of 8.1 times, with a dividend yield of approximately 6.3 percent. A de-escalation of the conflict in the Middle East could potentially trigger a rebound in equities.
Frequently Asked Questions
What caused the decline in the PSX this week?
Geopolitical tensions in the Middle East and border disputes along the western front caused the decline.
How much did the KSE-100 index fall this week?
The KSE-100 index recorded a steep decline of 6.3 per cent, or 10,566 points, closing at 157,496 points.
What is the current price-to-earnings ratio of the KSE-100 index?
The KSE-100 index is currently trading at a price-to-earnings ratio of 8.1 times.
Given the complex interplay of geopolitical factors and economic indicators, how do you anticipate the PSX will respond to potential shifts in the regional landscape?
