PSX Plummets: Middle East Conflict & Pakistan Airstrikes Trigger Market Sell-Off
PSX Plummets Amid Geopolitical Turmoil, Erasing Billions in Market Value
Karachi – The Pakistan Stock Exchange (PSX) endured a turbulent week, culminating in a 6.3 percent decline – a loss of 10,566 points – and closing at 157,496 points. The downturn was fueled by escalating geopolitical tensions in the Middle East and heightened security concerns along the Pakistan-Afghanistan border, triggering a wave of panic selling and investor uncertainty. The week’s performance extends losses for the sixth consecutive week, reflecting a broader anxiety surrounding global energy supply chains and regional stability.
Monday’s Historic Sell-Off
The week began with a dramatic plunge on Monday, marking a historic decline for the PSX. The benchmark KSE-100 index shed 16,089 points, equivalent to a 9.57 percent drop, wiping out approximately Rs1.7 trillion in investor wealth. This initial shockwave was largely attributed to the outbreak of conflict in the Middle East, specifically the escalation of tensions between Israel and Iran, and fears of a prolonged war in the Gulf region. Investors rushed to exit the market, overwhelmed by the perceived risks.
Macroeconomic Pressures and Inflation
Adding to the market’s woes, Pakistan’s macroeconomic indicators presented a challenging picture. Inflation rose to 6.98 percent year-on-year in February, up from 5.8 percent in January – the highest level since October 2024. This inflationary pressure, coupled with a widening trade deficit, further dampened investor sentiment. February’s trade gap stood at around $3 billion, with exports at $2.3 billion (down 8 percent year-on-year) and imports at $5.3 billion (down 1.6 percent). The overall trade deficit widened by 25 percent year-on-year, according to data cited in reporting from Dawn.
Foreign and Domestic Investment Flows
The sell-off was exacerbated by net selling from foreign investors. Foreign corporates offloaded equities worth $25.5 million, while mutual funds also recorded significant selling pressure, amounting to approximately $54.5 million due to redemption requests. However, domestic institutions provided some counterweight to the outflow. Banks purchased equities worth $36 million, while insurance companies and local corporates added $15.7 million and $14.3 million, respectively, offering limited support to the market.
Sector Performance and Market Activity
Despite the volatility, market activity remained relatively robust. Average daily trading volume stood at 658 million shares, with an average daily traded value of Rs36.2 billion. Sector-wise, refinery stocks were the only major gainers, rising 0.5 percent during the week. Conversely, the vanaspati and allied industries, property, and transport sectors experienced the steepest declines. Cement despatches showed a positive trend, increasing 12.53 percent year-on-year to 4.19 million tonnes in February, while fertiliser demand remained weak, with urea offtake falling 28 percent year-on-year to 251,000 tonnes – the lowest monthly level on record.
Energy Market Impacts and Government Response
The conflict in the Middle East has significantly impacted global oil prices, with the benchmark Arab Light crude rising 16.3 percent during the week to $83.1 per barrel. This surge in energy prices raised concerns about energy security, inflationary pressures, and the impact on Pakistan’s external account. In response, the government has adopted contingency measures, including weekly reviews of petroleum prices to pass on increased costs to consumers and the implementation of measures such as working from home and online classes to conserve oil stocks. Disruptions in oil supplies, as major shipping companies halted operations to and from the Gulf, contributed to the price increases.
Debt Market and Rupee Stability
In the debt market, the government raised Rs581.7 billion through a treasury bill auction, with yields increasing across all tenors by 21.5 to 39.3 basis points. Pakistan’s total public debt rose by 1 percent month-on-month in February, reaching Rs79.3 trillion – a 10 percent increase compared to the same period last year. Despite these pressures, the Pakistani rupee remained relatively stable against the dollar, appreciating marginally by 0.02 percent week-on-week to Rs279.41.
Looking Ahead: Geopolitics and Monetary Policy
Analysts at AKD Securities Ltd suggest that the sharp market reaction was an overreaction to the escalating military tensions in the Middle East and security concerns on the Pak-Afghan border, with a partial rebound observed in subsequent sessions. Looking forward, the market’s trajectory will largely depend on geopolitical developments in the Middle East and the State Bank of Pakistan’s upcoming monetary policy announcement. The KSE-100 index is currently trading at a price-to-earnings ratio of 8.1 times, offering a dividend yield of approximately 6.3 percent. Any de-escalation in the Middle East conflict could potentially trigger a strong rebound in equities, as the recent correction has made valuations more attractive. Further insight into market dynamics can be found on the Pakistan Stock Exchange website.
What’s next? The State Bank of Pakistan’s monetary policy decision will be a key factor influencing market direction. Investors will be closely watching for signals regarding interest rate adjustments and measures to address inflationary pressures. Developments in the Middle East and along the Pak-Afghan border will continue to shape investor sentiment and market volatility.