Market Volatility
The Pakistan Stock Exchange (PSX) witnessed a turbulent trading session on Friday as geopolitical tensions and economic uncertainty continued to take a toll on investor confidence. The market experienced significant volatility amid escalating tensions with India, with traders struggling to regain optimism in the face of mounting risks.
In the early hours of trading, the KSE-100 Index, the benchmark of the PSX, briefly rose to 115,844.88 points, reflecting a modest gain of 825.07 points or 0.72% from the previous day’s close.
However, this positive momentum was short-lived, as the index quickly reversed course, dipping to an intraday low of 113,716.60 points, marking a drop of 1,303.21 points or -1.13%.
Investment analyst AAH Soomro attributed the market’s fluctuations to the rising geopolitical concerns between India and Pakistan. “The fear is escalating as tensions between India and Pakistan have increased following attacks on Indian tourists,” Soomro noted. “Investors are likely to remain cautious for several weeks until there is more clarity on whether these tensions will escalate further.”
The volatility comes on the heels of India’s response to the deadly attack on Indian tourists in Indian Illegally Occupied Jammu and Kashmir (IIOJK), which included suspending a bilateral water treaty, severing diplomatic ties, and imposing travel restrictions.
In retaliation, Pakistan closed its airspace to Indian flights and expelled Indian diplomats, further straining relations between the two countries.
Compounding the geopolitical uncertainty, the State Bank of Pakistan (SBP) issued its Financial Stability Review 2024, highlighting the risks posed by protectionist global trade policies.
The SBP flagged new tariffs imposed by the United States and shifting global trade dynamics as potential threats to economic growth, particularly for emerging markets like Pakistan. The review warned that these global risks could exacerbate Pakistan’s financial challenges.
Additionally, the SBP’s weekly data revealed a concerning drop in foreign exchange reserves, which fell by $367 million to $10.21 billion. The central bank attributed the decline to debt repayments and limited financial inflows.
Total reserves, including those held by commercial banks, dropped to $15.436 billion. Despite a record $1.2 billion current account surplus in March, Pakistan faced a $97 million deficit in February, underscoring ongoing fiscal challenges.
With investor sentiment remaining cautious, the market is expected to remain volatile, with traders closely monitoring developments in diplomatic relations and the country’s economic policies. The outlook hinges on the ability of policymakers to stabilize the fiscal and monetary landscape while managing external risks.
