Pakistan Stock Exchange’s Role Affected by Geopolitical Fears

Updated June 22, 2025

KARACHI – A volatile week concluded with the Pakistan Stock ⁣Exchange (PSX) experiencing a downturn, as escalating geopolitical tensions, ‍particularly ⁣in the Middle East, eroded investor confidence and spurred widespread⁣ profit-taking. This impacted the stock exchange’s role in ‍the country’s economy.

The KSE-100 index⁢ closed ‍down 2,120 points, a 1.7% drop, settling at 120,023.This occurred despite an‍ initial⁣ positive reaction to the State Bank of Pakistan (SBP) maintaining the policy ⁣rate at 11% as was to be expected.

Market sentiment quickly turned cautious due to regional conflict, overshadowing positive macroeconomic indicators and ⁣prosperous Treasury Bill and Pakistan Investment Bond (PIB) auctions, according to Arif habib ltd. The SBP raised 916 ⁢billion rupees against a 900 billion rupee target in a special ⁢22-day Treasury⁣ Bill auction. An additional ⁢557 billion rupees was raised in a PIB auction,exceeding the 300 ⁢billion rupee target,with ⁣total participation reaching 1.2 trillion ⁣rupees. Cut-off yields ranged from 11.39% to 12.70%.

The SBP reported⁤ a current account deficit of $103 million for May, a meaningful⁢ advancement from $235 million the previous year. Foreign exchange reserves ⁤increased by $46 million to $11.7 billion. However, the rupee depreciated ‍by 0.74 rupees week-on-week, settling at 283.70 against the U.S. dollar. This currency fluctuation plays a key role in investor decisions.

Investor sentiment falters as ‍geopolitical risks eclipse ⁢economic stability

Sectoral performance reflected risk ‍aversion. The power sector dragged the index down by 652 points, followed by cement ‍(475 points), fertilizer ‍(193 points), pharmaceuticals (144 points), and oil and gas exploration (144 points). ⁢The banking sector provided some positive‍ contribution, adding 234 points, supported by‍ gains⁣ in United Bank, Bank Al-Habib, and Habib Bank. Oil and gas ⁢marketing, textiles, and insurance also contributed positively.

Packages Ltd, Lucky⁣ Cement, Fauji Fertilizer, Mari Petroleum,⁣ and Pakistan petroleum Ltd. were among the negative ⁣scrip-wise movers. Oil and Gas Development company and Systems Ltd each added 60 ⁤points.

Foreign⁣ investors showed ⁤net buying⁣ of‍ $0.46 million, a reversal from the previous week’s net selling of $7.43 million. Foreign inflows focused on cement ($1.6 million) and exploration and production ($1.0 million).⁣ Mutual funds⁢ and insurance companies⁣ were net sellers, while individuals absorbed the selling pressure with ⁤net buying of $15.6 million. The role of foreign investment remains crucial.

Average daily trading volume decreased by 9.4% to ‍821.9 million shares, and traded value plunged 40.4% to $78.4 million, ⁢indicating reduced market participation amid uncertainty.

Broader economic ⁣indicators presented mixed signals. Large-scale⁣ manufacturing output ⁢increased by ‍2.3% year-on-year in April, while the real effective exchange rate (REER) fell to 97.8, ‍the ‍lowest since September 2023. Net foreign direct ⁣investment (FDI) in May was⁣ $194 million, while repatriation of‍ profits and dividends reached⁢ $264 million. ‍Pakistan’s trade deficit was $2.6 billion. Banking sector deposits and advances increased, with the advance-to-deposit ratio at 39.8% and⁢ the investment-to-deposit ‍ratio at 105.7%.

Other developments included a 19% ‍year-on-year increase in IT⁣ exports, reaching $3.5⁣ billion, and significant ⁤increases in urea and DAP sales. The government also introduced the National Electric Vehicle Policy and a draft tariff policy for 2025-30.

What’s next

Analysts suggest ⁤that geopolitical developments will continue to influence market sentiment. De-escalation⁣ in the Middle East could trigger a recovery. AKD Securities projects a medium-term recovery, expecting the KSE-100 to reach 165,215 points‍ by December 2025, supported by strong earnings ‍in fertilizers, sustained return on⁤ equity in banks,