- KSE-100’s 57% USD-based return in FY25 boosts Pakistan’s appeal for global investors, making it an attractive option for emerging and frontier market funds in FY26
The benchmark KSE-100 Index of the Pakistan Stock Exchange (PSX) is projected to deliver a 33.8% return and reach 168,000 by June 2026, according to the latest strategy report from Arif Habib Limited (AHL).
This growth is expected to be driven by a combination of low-interest rates and a 14% corporate earnings growth, excluding sectors such as banks and oil & gas exploration (E&Ps).
The report, named “Strategy FY26 Emerging Stronger,” notes that overall earnings growth for FY26, including all sectors, is projected to be 9.2%. This marks a strong recovery in corporate profitability, with the index trading at a forward P/E of 6.8x based on FY26 earnings, significantly below the 10-year historical average of 8.0x. This suggests substantial re-rating potential for the market.
Domestic liquidity remains a key factor in the market’s performance. In FY25, domestic inflows constituted 93% of the total market volume, with significant contributions from mutual funds, individuals, companies, and non-banking financial companies (NBFCs). The total inflow from mutual funds alone stood at USD 233 million. However, banks, brokers, and insurance companies saw net outflows.
AHL also highlighted that State Life Insurance Corporation (SLIC) increased its market exposure by PKR 64 billion since December 2023, which significantly boosted overall portfolio returns. While mutual funds remain below their 2017 levels in terms of market share, the shift from fixed income to equities by institutions like mutual funds and insurance companies is expected to contribute an additional PKR 34.7 billion and PKR 3.5 billion, respectively, to the market.
The report further highlights that the KSE-100 remains one of the most liquid markets in the MSCI Frontier Markets space, with an average daily trading volume (ADTV) of $102 million in FY25. Additionally, the market’s attractive P/E and price-to-book (P/B) ratios, at 6.8x and 1.1x respectively, make it a favorable investment option compared to regional averages.
Foreign investment in Pakistan’s equity market experienced net outflows of $304 million in FY25, reversing the previous year’s inflows. This was mainly due to global factors such as reciprocal tariffs imposed by the US and elevated interest rates.
However, the AHL anticipates a recovery in foreign investment in FY26, with inflows expected to range between $150 million and $200 million. This anticipated rebound is underpinned by attractive market valuations, improving macroeconomic stability, and a stable currency outlook are expected to support renewed investor interest.
“Pakistan will be hard to ignore for global portfolio managers that include frontier or emerging markets in their universe. The KSE-100 Index delivered an impressive USD-based return of 57% in FY25, making it the best-performing market in the Asia-Pacific region. This outperformance is expected to draw increased attention to Pakistan’s equity story in FY26,” read the report.
The economic outlook for Pakistan in FY26 is optimistic, with a projected real GDP growth rate of 3.34%. Key sectors such as agriculture, services, and industry are expected to drive this growth. The inflation rate is projected to average 5.4%, and the country’s current account deficit (CAD) is expected to reach $1.6 billion due to a rebound in import-led demand.
