KARACHI:
Pakistan’s equity market closed FY25 as the top-performing market in Asia, delivering a 60% return and significantly outperforming all major regional peers. This strong performance was driven by macroeconomic stability, structural reforms, and improved investor sentiment, despite global and domestic challenges.
Analysts from JS Global and AKD Securities cited a robust recovery in confidence, high trading activity, and strong sectoral performance as key drivers.
Waqas Ghani Kukaswadia, Head of Research at JS Global, said the rally reflected a turnaround in investor sentiment due to better economic indicators and policy continuity. According to data from JS Global, Pakistan Stock Exchange (PSX), and Bloomberg, Pakistan’s performance outshone China (16%), Vietnam and Korea (10% each), and India (6%), while the Philippines, Indonesia, Taiwan, Malaysia, and Thailand posted negative returns. Thailand declined the most, by 16%.
Despite the rally, Pakistan’s equity market remains undervalued. It trades at a price-to-earnings (P/E) multiple of just 6.3 times, far below regional averages. India trades at 23.1 times, Taiwan at 16.5, Malaysia at 14.1, and China at 13.4. The Philippines and Indonesia also trade at higher multiples — 10.2 and 10.9, respectively. Analysts believe this valuation gap highlights strong upside potential, particularly for long-term investors seeking undervalued emerging market exposure.
Muhammad Awais Ashraf of AKD Securities credited the KSE-100 Index’s momentum to aggressive monetary easing, tight fiscal policy, and a strong external account. These factors made equities the top asset class for a second straight year. The KSE-100 rose by 60.1% in local currency and 57.1% in USD terms, driven largely by capital appreciation. The rupee depreciated by 1.9% in FY25, after appreciating 2.7% in FY24. Rising import demand and limited external financing impacted the currency, despite a current account surplus.
Investor participation surged in FY25. Trading volumes rose 43.6% year-on-year to a record 823 million shares. The value traded jumped 82.6% to Rs38.1 billion. The rally was broad-based, led by the Main Board. The Pharmaceutical sector posted the highest return of 99%, followed by Cement (93%), Oil Marketing Companies (88%), and Fertilisers (78%).
Banks contributed the most to index gains with 15,160 points, followed by Fertilisers (8,292 points), E&Ps (6,845), and Cement (5,596). The only sector to negatively impact the index was Automobile Parts & Accessories, which pulled it down by 90 points.
However, FY25 also brought challenges. Pakistan’s reclassification by FTSE to Frontier Market status in September 2024 led to foreign outflows. Foreign investors sold $304.3 million worth of equities, ending a two-year buying streak. The banking sector saw the largest outflow of $108.7 million, followed by fertilisers ($66.9 million), E&Ps ($65.8 million), food ($42.3 million), and power ($21.3 million). In contrast, the technology sector saw net inflows of $21.8 million, with cement, textiles, and OMCs also attracting some inflows.
Domestically, mutual funds became net buyers for the first time in three years, purchasing $232.9 million in equities. Companies and individual investors were also active, buying $94.5 million and $68 million, respectively. NBFCs and smaller institutions made marginal purchases. However, banks, insurance firms, and brokers reduced their equity exposure by $55.1 million, $21.2 million, and $17.6 million, respectively.
Looking ahead, analysts remain optimistic about the PSX. Kukaswadia said the re-rating story is intact, supported by macro stability, lower interest rates, and improving sentiment. Ashraf added that continued monetary easing, structural reforms, and fiscal discipline will keep equities in focus. Falling fixed-income yields make equities even more attractive. Pakistan’s forward P/E stands at just 5.6 times.
Ashraf highlighted sectors like energy, banking, and fertilisers as key beneficiaries. AKD’s top stock picks for FY26 include OGDC, PPL, MCB, MEBL, HBL, FFC, ENGROH, PSO, FCCL, INDU, ILP, and SYS.
