KSE-100 Index declines 2% in a week amid geopolitical uncertainty and rising inflation
KARACHI, June 6, 2026 — The Pakistan stock market recorded a sharp weekly decline of nearly 3,500 points as escalating geopolitical concerns in the Middle East and rising domestic inflation dampened investor sentiment.
The benchmark KSE-100 Index of the Pakistan Stock Exchange (PSX) closed at 170,479 points during the week ended June 5, 2026, down 3,484 points, or 2%, from the previous week, according to a market report released by Arif Habib Limited.
Middle East Crisis Pressures Investor Confidence
Analysts attributed the decline in the Pakistan stock market primarily to uncertainty surrounding ongoing negotiations between the United States and Iran. The absence of any significant progress in diplomatic talks continued to weigh on global risk appetite and prompted cautious trading activity on the local bourse.
Market participants remained reluctant to take fresh positions as concerns over potential regional instability overshadowed otherwise supportive economic indicators.
Inflation Climbs to Two-Year High
Adding to investor concerns, Pakistan’s Consumer Price Index (CPI) rose to 11.7% year-on-year in May 2026, up from 10.9% in April.
The latest inflation reading marked the highest level since June 2024, fuelling speculation about the future direction of monetary policy and increasing uncertainty over the country’s economic outlook.
Higher inflation is generally viewed as negative for equities as it can increase borrowing costs and reduce corporate profitability.
Mixed Trends Across Agriculture and Energy Sectors
The agriculture sector showed mixed performance during the month. Provisional urea offtake fell 3% year-on-year to 463,000 tonnes in May, although cumulative sales during the first five months of 2026 increased 8%.
Meanwhile, diammonium phosphate (DAP) sales dropped 38% from a year earlier as elevated prices affected demand.
In the energy sector, refinery uplift declined 7% year-on-year, while oil marketing companies reported a 23% drop in sales volumes during May.
Despite weaker sales, Pakistan’s oil reserves increased 6% year-on-year to 253 million barrels, supported by new discoveries and higher production from existing fields. Natural gas reserves also rose 4% to 18,854 billion cubic feet.
Trade Deficit Narrows Amid Lower Imports
Pakistan recorded a trade deficit of $2.6 billion in May 2026.
Exports rose 1.3% year-on-year to $2.7 billion, while imports declined 6.6% to $5.3 billion, helping narrow the external gap.
The State Bank of Pakistan’s foreign exchange reserves also improved slightly to $17.2 billion, providing import cover of approximately 2.76 months.
Market Outlook Remains Uncertain
Analysts expect the Pakistan stock market to remain range-bound in the near term as investors await the federal budget and further clarity on key economic policies.
Any positive development in US-Iran negotiations could improve sentiment and support a market recovery, they said.
Despite recent volatility, the KSE-100 Index is currently trading at a price-to-earnings ratio of 7.9 times and offers a dividend yield of around 6.4%, factors that may continue to attract long-term investors seeking value opportunities in the Pakistan stock market.
