Pakistan Stock Market Reacts Sharply After Cross-Border Tensions Rise
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The Pakistan Stock Exchange (PSX) witnessed heightened volatility this week following reports of a militant attack on Indian soil allegedly carried out by Pakistan-based operatives. The geopolitical escalation triggered a wave of nervous selling, particularly among foreign investors.
KSE-100 Index Sees Sharp Drop
The benchmark KSE-100 index fell by over 1,200 points, or nearly 3.2%, in intraday trading on Thursday following confirmation of the cross-border incident. Though the market pared some losses on Friday, investor sentiment remains fragile. The index closed the week down 2.6%, marking its worst performance in over two months.
Investor Sentiment Wavers
The attack has reignited fears of military retaliation by India, pushing investors toward safe-haven assets and away from equities. Foreign institutional investors turned net sellers amid concerns of regional instability and its impact on the economy.
Key Sectors Affected
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Banking and financial stocks suffered heavy losses due to currency and interest rate concerns.
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Energy and construction stocks also declined amid expectations of slower infrastructure activity if tensions escalate.
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Defense-related companies and safe-haven plays like gold surged in contrast.
Currency and Bond Markets Also Hit
The Pakistani rupee weakened to 287.60 against the US dollar, reflecting capital flight and forex uncertainty. Meanwhile, yields on government bonds edged higher as investors sought a risk premium for holding Pakistani assets.
Government Response
The Ministry of Finance and the Securities and Exchange Commission of Pakistan (SECP) issued statements urging calm, assuring that market fundamentals remain strong and that steps will be taken to maintain liquidity and stability.
Analysts, however, warn that prolonged tensions or any military retaliation from India could lead to further outflows, currency depreciation, and economic slowdown.
Regional Impact
While Indian equity markets also dipped initially, the fall was more contained, reflecting greater institutional depth and expectations of a calibrated response. Regional markets, particularly Sri Lanka and Bangladesh, also saw mild risk-off sentiment.
Outlook
Until there is diplomatic clarity or de-escalation, the PSX is expected to remain under pressure. Analysts advise caution and prefer defensive and export-oriented stocks amid rising uncertainty.