Pakistan's Benchmark Index Has Doubled In One Year: What's Happening?

At a time when most global markets are under pressure due to geopolitical uncertainty and tariff wars, the Pakistan benchmark index, KSE 100, is on a tear.

The Pakistan index has almost doubled over one year, rising from 83,300 levels in October 2024 to 1,60,000 levels currently after recently hitting a recent all-time high of 1,69,000. In comparison, the MSCI Emerging Markets Index is up 16.4%.

In the wake of the recent rally, Ali Najid, Deputy Head of Trading at Arif Habib Ltd. told Dawn News that the upsurge in PSX has been led by strong mutual fund inflows, coupled with equally strong retail activity and improved investor sentiment on account of US-Pakistan ties.

The Pakistani economy facing significant challenges not too long ago, with inflation reaching up to 30% in 2023 while fiscal deficit stood at 7.8%.

But those numbers have gotten better since. Pakistan's annual inflation rate dropped to 4.1% in July 2025, while fiscal deficit stood at 5.38% of GDP in FY25.

One reason for the uptick in Pakistan stock prices could be depressed valuations. According to Simply Wall St., the index's price-to-earnings ratio was trading at low 5.6 times, which has now risen to 9.8x.

Countries with high-growth prospects, such as India, trade at P/E ratios around or above 20.

Even on the economic front, while somethings may have improved, not everything is rosy, with growth slowdown still proving to be a challenge. Pakistan's real GDP growth was only 2.68%, missing the government's target of 3.6%.

Things are not good on the IMF front either. Despite marathon negotiations, there has been growing mistrust between the Pakistani government and the IMF, which is increasingly questioning the country's spending habits and reform commitment. All of these factors have led Pakistan's $1 billion tranche to remain on hold.

The reliance on IMF and ties with US, coupled with increasing defence spending could potentially put Pakistan on the backfoot in the quarters to come.

It remains to be seen, however, whether the economic realities will weigh on the equity market, which currently is doing well.