The Pakistan Stock Exchange experienced a bearish week, concluding with a significant downturn as geopolitical instability, particularly in the Middle East, shook investor confidence and spurred widespread profit-taking.

Despite an initial positive response to the central bank’s decision to maintain the policy rate at 11pc, the KSE-100 index ultimately fell by 2,120 points, a 1.7pc decrease, closing at 120,023.

Market sentiment turned negative due to escalating regional conflicts, overshadowing otherwise positive macroeconomic indicators and prosperous treasury auctions. A special 22-day Treasury Bill auction saw Rs916bn raised against a target of Rs900bn. furthermore, a Pakistan Investment Bond (PIB) auction generated Rs557bn, exceeding the Rs300bn target, with total participation reaching Rs1.2tr. Cut-off yields varied between 11.39pc and 12.70pc,indicating diverse investor expectations regarding future interest rate movements.

The central bank reported a current account deficit of $103m for May, a notable improvement from $235m in the same period last year. Foreign exchange reserves increased by $46m to $11.7bn, while the rupee weakened by Rs0.74 week-on-week, settling at 283.70 against the US dollar.

Investor sentiment falters as geopolitical risks eclipse economic stability

Sectoral performance reflected a cautious investment approach, with the power sector leading the decline at 652 points, followed by cement (475 points), fertiliser (193 points), pharmaceuticals (144 points), and oil and gas exploration (144 points). conversely, the banking sector showed positive movement, contributing 234 points, driven by gains in United Bank (107 points), Bank Al-Habib (90 points), and Habib Bank (72 points). Other sectors with positive contributions included oil and gas marketing (15 points), textiles (14 points), and insurance (9 points).

Individually, Packages Ltd (566 points), Lucky Cement (-242 points), Fauji Fertiliser (114 points), Mari Petroleum (91 points), and Pakistan Petroleum Ltd (88 points) experienced the most significant declines. on the positive side,Oil and Gas Growth Company and Systems Ltd each added 60 points.

Foreign investors showed net buying of $0.46m, a shift from the previous week’s net selling of $7.43m. Foreign investments were primarily focused on cement ($1.6m) and exploration and production ($1.0m). Domestically, mutual funds and insurance companies were net sellers, offloading $16m and $2.9m, respectively, while individual investors absorbed the selling pressure with net purchases of $15.6m.

The average daily trading volume decreased by 9.4pc week-on-week to 821.9m shares, and the traded value plummeted by 40.4pc to $78.4m,indicating reduced market participation amid increased uncertainty.

Wider economic indicators presented a mixed picture. Large-scale manufacturing output increased by 2.3pc year-on-year in April, while the real effective exchange rate (REER) fell to 97.8, its lowest level as September 2023. Net foreign direct investment (FDI) in May was $194m, while repatriation of profits and dividends reached $264m. Pakistan’s trade deficit was $2.6bn during the month. Banking sector deposits and advances grew by 11.6pc and 7.0pc year-on-year, respectively, resulting in an advance-to-deposit ratio of 39.8pc and an investment-to-deposit ratio of 105.7pc.

Other key developments included a 19pc year-on-year increase in IT exports,reaching $3.5bn during the first 11 months of FY25, and ample increases in urea and DAP sales, up by 5pc and 135pc, respectively, in May. The government also introduced the National Electric Vehicle Policy and a draft tariff policy for 2025-30.

In terms of sector performance, woollen (up 18.3pc), jute (14.5pc), modarabas (6.7pc), close-end mutual funds (4.7pc), and transport (2.0pc) were the leading sectors.Conversely, power (-10.2pc),engineering (-5.2pc), investment companies (-5.1pc), glass and ceramics (-3.5pc), and tobacco (-3.5pc) experienced the most significant declines.