Pakistan’s equity market posted strong gains in 2025 but failed to attract sustained foreign investment, as overseas investors recorded net outflows despite a sharp rise in share prices. Data from the State Bank of Pakistan show that foreign investors withdrew $393 million from the equity market during the first half of FY26, compared with inflows of $142 million, resulting in net outflows of $251 million.
This trend persisted even as the benchmark KSE-100 Index rose 38.8% during July–December FY26 to close at 174,472 points on December 31, compared with 125,627 points at the start of the fiscal year. On a calendar-year basis, the index delivered an annual return of around 51%, reflecting strong participation from domestic investors.
Market participants noted that local investors continued to channel funds into equities despite weak macroeconomic conditions, while foreign investors remained cautious. Analysts pointed out that the equity market’s performance has increasingly diverged from broader economic indicators, including subdued growth and rising poverty levels.
Foreign investment weakness extended beyond equities. SBP data show that foreign direct investment declined by 25% during the first five months of FY26, indicating a broader hesitation among overseas investors across sectors.
Privatisation efforts have also failed to draw foreign interest. The sale of Pakistan International Airlines attracted only a local consortium, despite incentives such as debt restructuring and the airline’s extensive international route network. Similar outcomes were observed in other privatisation initiatives.
Analysts attributed foreign investors’ reluctance to pressures on Pakistan’s external accounts and trade performance. The trade deficit widened to $3.7 billion in December 2025, up 24% year-on-year and 28% month-on-month. Cumulatively, the trade gap expanded by 34.57% to $19.204 billion during July–December FY26, compared with $14.271 billion in the same period last year.
The current account position also weakened. During July–November FY26, Pakistan recorded a current account deficit of $812 million, reversing a surplus of $503 million in the corresponding period of the previous fiscal year.
Market observers said that while equity returns remain strong, concerns over external balances, trade performance and overall economic momentum continue to weigh on foreign investor sentiment.
