The benchmark KSE-100 index of the Pakistan Stock Exchange (PSX) closed the week with a notable loss of 1.74%, as investor confidence remained fragile amid rising geopolitical uncertainty. Heightened tensions between Iran and Israel sent shockwaves through regional markets, including Pakistan, triggering a wave of risk aversion and subdued participation in the equity space.
According to market analysts at Topline Securities, the standoff in the Middle East has created widespread anxiety across global financial markets. The uncertain geopolitical backdrop has negatively impacted commodities, foreign exchange markets, and equity indices, contributing to an overall cautious tone. Investors in Pakistan followed suit, reducing equity exposure and parking funds in safer assets, a trend that reflected clearly in the KSE-100’s weekly performance.
However, international developments were not the only drivers behind the bearish mood. Domestically, several macroeconomic signals added to the caution. On Monday, the Monetary Policy Committee of the State Bank of Pakistan (SBP) announced that it would keep the policy rate unchanged at 11%. While the decision aligned with market expectations, it failed to act as a catalyst for market momentum, as investor focus remained centered on external risks.
The country’s current account data also contributed to market unease. For May 2025, Pakistan posted a current account deficit of $103 million, a sharp reversal from the $47 million surplus reported in April. This deterioration has raised fresh concerns about the sustainability of the external account, especially in a high-risk global environment where capital flows are becoming more volatile.
On the reform front, the federal government introduced a major development with the approval of a long-awaited financial restructuring plan. The plan aims to slash Rs1.275 trillion from the power sector’s circular debt over the next six years. While the restructuring initiative is seen as a potentially transformative step for long-term fiscal discipline, it failed to generate any immediate market excitement, possibly due to skepticism over execution timelines and policy continuity.
Adding to the mix, the government finalized a $1 billion Syndicated Term Finance Facility (STFC) in collaboration with several commercial banks. The facility is supported by the Asian Development Bank (ADB) and is expected to provide some liquidity cushion in the months ahead. However, this too had little immediate influence on trading sentiment, as market participants remained preoccupied with external developments.
Trading activity throughout the week was notably muted. Average daily traded volume settled at 822 million shares, while the average daily traded value was recorded at Rs22 billion. These figures suggest that many investors chose to remain on the sidelines, preferring to adopt a wait-and-see approach until clearer signals emerge on both geopolitical and economic fronts.
Analysts forecast a continued range-bound performance for the KSE-100 index in the near term. The market’s trajectory will likely hinge on two key variables: de-escalation of geopolitical tensions and improved domestic macroeconomic indicators. Until then, investors are expected to remain selective and defensive in their equity positioning.