Pakistan’s equity market came under pressure this week as renewed US-Iran tensions weakened investor sentiment and raised concerns over energy prices and regional stability. The benchmark KSE-100 Index declined 2,368 points, or 1.3% week-on-week, to close at 175,329 on Friday.
Despite the weekly decline, the KSE-100 remained 0.7% higher since the beginning of 2026. The KSE-All Share Index fell 1.2% to 106,443, while the KSE-30 Index declined 1.2% to 52,295. The KMI-30 Index also decreased 0.6% to 250,239.
The market downturn followed escalating US-Iran tensions, including US strikes on Iran and subsequent Iranian attacks on US military bases in the region. Analysts believe geopolitical developments remain the biggest near-term risk for Pakistan’s stock market.
Despite the challenging external environment, analysts remain optimistic about the PSX’s medium-term outlook. AKD Securities expects the market to regain momentum as economic indicators improve, corporate earnings remain strong, and Pakistan approaches its next IMF review.
The brokerage also highlighted Pakistan’s record $3 billion dual-tranche Eurobond issuance, which secured the country’s lowest spread over US Treasuries in two decades and became Pakistan’s largest international capital market transaction.
Market valuations also remain attractive. AKD Securities placed the KSE-100’s forward price-to-earnings ratio at around seven times. From Friday’s closing level of 175,329 points, its December target of 263,800 points implies potential upside of approximately 50%.
Arif Habib Limited also considers valuations attractive. It noted that the KSE-100 traded at a P/E ratio of 7.8 times with a dividend yield of 6.3%.
In its comparison of Pakistan with 10 Asian markets, Pakistan recorded the lowest P/E ratio while also posting the highest dividend yield and return on equity, at 6.3% and 20.1%, respectively.
Pakistan’s economic data presented a mixed picture during the week. Consumer inflation accelerated to approximately 11.1% in August, compared with 9.2% in July.
The country also recorded a $3.2 billion trade deficit. Exports increased 3.8% year-on-year to $2.5 billion, but imports grew at a faster rate, rising 7.4% to $5.7 billion.
Federal tax collection provided some support. The Federal Board of Revenue collected Rs. 902 billion in August, representing a 2% year-on-year increase, although the amount remained Rs. 28 billion below the monthly target.
During the first two months of FY2027, FBR collections reached Rs. 1.722 trillion, up 5% and exceeding the target of Rs. 1.710 trillion by Rs. 12 billion.
The government also repaid a record Rs. 1.2 trillion in central bank debt, while Pakistan’s foreign exchange reserves increased by $19 million during the week to reach $17.1 billion as of August 28.
Global energy prices emerged as another major concern for investors. Brent crude initially reached a six-week high of $97.60 per barrel amid escalating US-Iran tensions.
By September 4, spot Brent had climbed to $101.67 per barrel, recording a 13.33% weekly increase. WTI also rose 8.3% to $90.32 per barrel, while coal prices increased 13.86%.
Gold prices moved in the opposite direction, declining 1.13% during the week.
Higher energy prices could increase pressure on Pakistan’s import bill and inflation outlook, creating additional uncertainty for investors.
The banking sector made the largest negative contribution to the KSE-100, dragging the index down by 1,318 points during the week.
Cement companies reduced the index by 334 points, while exploration and production companies contributed a 194-point decline. Technology stocks and power companies reduced the index by 185 and 126 points, respectively.
Investment banks provided 151 points of support, while fertilizer companies added 82 points.
At the company level, EFERT was the strongest positive contributor, adding 177 points. ENGROH contributed 159 points, followed by OGDC with 82 points. THALL and ILP added 31 and 26 points, respectively.
UBL was the largest drag on the index, reducing it by 555 points. HBL followed with a 252-point decline, while PPL, MEBL, and LUCK contributed negative impacts of 232, 142, and 139 points, respectively.
PGLC recorded the strongest weekly performance, gaining 21.5%. THALL rose 4.8%, while EFERT increased 4.6%. TPLRF1 and ILP advanced 2.6% and 2.5%, respectively.
PSEL recorded the biggest decline, falling 7%. SRVI dropped 5.2%, while KOHC, LOTCHEM, and SEARL declined 4.9%, 4.8%, and 4.7%, respectively.
Investor flows reflected continued caution. Foreign investors recorded net selling of $7.16 million during the week. Foreign corporates accounted for $12.04 million in selling, while overseas Pakistanis purchased a net $4.88 million.
Commercial banks experienced the largest foreign outflows, with net selling of $6.69 million.
Among domestic investors, banks and development finance institutions were net buyers of $64.16 million. Individuals purchased shares worth $17.05 million, while companies bought a net $7.29 million.
Mutual funds, however, recorded net selling of $83.35 million.
Average daily trading volume increased 7.6% week-on-week to 766.7 million shares. However, average traded value declined 6.1% to $119.7 million.
The KSE-All market capitalization stood at approximately Rs. 19.629 trillion, or $71 billion, at the end of the week, representing a 1.3% decline.
Analysts expect economic improvements, stronger government finances, and corporate earnings to provide support to the PSX in the coming months.
AKD Securities believes easing inflation could increase the possibility of interest rates returning to single-digit levels by year-end. A potential US-Iran agreement could also reduce pressure on global oil prices and bring crude closer to pre-conflict levels.
AHL expects geopolitical developments to remain a key market driver but sees support from the ongoing corporate earnings season, where companies have largely reported positive results.
Intermarket Securities also identified developments surrounding the Strait of Hormuz, Pakistan’s upcoming IMF review, and progress on domestic reforms as important factors for the market’s near-term direction.
