Rising geopolitical risks, weaker foreign investment and a widening current account deficit pressure Pakistan’s stock market
KARACHI: Pakistan’s benchmark KSE-100 Index fell 3.5% week-on-week (WoW) as escalating tensions between the United States and Iran kept international crude oil prices elevated, weakening investor confidence and triggering broad-based selling at the Pakistan Stock Exchange (PSX).
The benchmark remained under pressure throughout the week as investors adopted a risk-off approach amid concerns that a prolonged conflict in the Middle East could disrupt global energy supplies, increase oil prices and add pressure to Pakistan’s external account.
Economic indicators paint mixed picture
Several macroeconomic developments shaped market sentiment during the week.
Pakistan’s net foreign direct investment (FDI) dropped sharply to $14 million in June 2026, marking a 94% month-on-month decline from $214 million in May. Analysts attributed the fall largely to sector-specific outflows and profit repatriation.
The country’s Real Effective Exchange Rate (REER) edged higher to 106.44 in June from 106.08 a month earlier, indicating a modest appreciation in the rupee’s real exchange rate.
Meanwhile, Pakistan’s current account swung into a $649 million deficit in June after posting a $500 million surplus in May, reflecting higher import payments that outpaced export earnings.
Despite broader market weakness, the automobile sector remained resilient. Car sales increased 4% year-on-year and 29% month-on-month to 22,741 units in June, supported by strong pre-budget demand.
Mutual funds lead selling
Institutional investors remained the biggest sellers during the week.
Market data showed that mutual funds recorded net equity sales of approximately $28 million, making them the largest source of selling pressure.
In contrast, individual investors purchased shares worth $9.9 million, while foreign corporates bought equities valued at $9.2 million, providing partial support to the market.
Trading activity remains robust
Despite the decline in share prices, trading volumes remained relatively strong.
Average daily trading volume stood at 740 million shares, while the average daily traded value reached approximately Rs34 billion, indicating continued investor participation amid heightened volatility.
Outlook
Analysts said the near-term direction of the Pakistan Stock Exchange will remain closely linked to developments in the Middle East.
Any easing in tensions between the United States and Iran could improve global risk appetite, reduce pressure on oil prices and support a rebound in the KSE-100 Index.
However, persistent geopolitical uncertainty, elevated energy prices and concerns over Pakistan’s external sector are likely to keep market volatility high in the coming weeks, with investors expected to remain focused on both international developments and domestic macroeconomic indicators.