PSX ranks third worst equity market worldwide amid Iran war, inflation: report

The Pakistan Stock Exchange (PSX) ranked among the worst-performing markets globally in the March 2026 quarter, posting negative returns of 14.5% in rupee terms and 14.6% in dollar terms, placing it as the third worst-performing equity market worldwide, according to data compiled by Topline Securities.

Data showed that Pakistan underperformed several regional and global peers, with only India and Indonesia recording steeper declines of 19.4% and 19.0%, respectively, in dollar terms during the quarter.

In contrast, markets such as Ghana, Oman and Nigeria posted strong positive returns of 43.6%, 42.3% and 34.1%, respectively, highlighting a divergence in global equity market performance.

The research firm attributed the decline in Pakistan’s market to heightened geopolitical tensions linked to the Middle East conflict, which impacted investor sentiment and triggered volatility across emerging markets.

Concerns over rising domestic inflation, driven by increasing global energy prices, also weighed on equities, alongside uncertainty around macroeconomic stability.

Market participants said that external shocks, particularly oil price movements and geopolitical developments, played a key role in shaping investor behaviour during the quarter.

In a note, AKD Research said that the PSX remained volatile throughout the week ending on Friday, primarily due to evolving geopolitical tensions in the Middle East and sharp movements in international oil prices. 

The research firm forecasted that the Market sentiment will hinge on developments in the Middle East conflict. At the same time, upcoming corporate results are expected to remain in focus as the 3QFY26 earnings season approaches. Over the medium term, any de-escalation could trigger a strong rebound, as recent corrections have made valuations more attractive, with forward P/E now at 6.4x.

AKD Research said that positive sentiment in the first half of the week was supported by (i) Pakistan-led diplomatic efforts, which fueled optimism for possible de-escalation, (ii) a lower-than-expected increase in CPI to 7.3% YoY in Mar’26, and (iii) Pakistan securing a staff-level agreement with the IMF for $1.2 billion.

However, conflicting statements from Iran and the U.S., along with concerns over a possible ground invasion by the latter, weighed on sentiment. Consequently, the benchmark index declined by 1,309 points during the week to close at 150,399, leading to subdued market participation, with average daily traded volumes falling 31% WoW to 604 million shares.

On the macroeconomic front, 2QFY26 GDP growth improved to 3.9% YoY (compared to 3.6% YoY in 1QFY26), while the trade deficit for Mar’26 widened 4% YoY to $2.7 billion. Meanwhile, the government announced an increase in fuel prices, with HSD and MS rising by Rs184.5 and Rs137.2 per litre, respectively, after providing subsidies over the past three weeks.

On the sectoral front, OMC sales for Mar’26 increased 19% YoY to 1.4 million tons, while cement offtakes rose 1% YoY during the same period. Furthermore, T-bill yields showed mixed movement, declining by 29 and 2 basis points for 1- and 6-month papers, while 3- and 12-month papers increased by 29 and 25 basis points, respectively.