PSX outlook improves, but regional uncertainty persists

AKD expects stronger economic indicators, fiscal position and potential rate cuts to lift equities, while AHL sees earnings and upcoming IMF review supporting the market amid geopolitical uncertainty Pakistan's equity market is expected to regain momentum on improving economic fundamentals, corporate earnings and the upcoming IMF review, according to three major brokerages. However, geopolitical uncertainty remains the principal near-term risk. The forecast follows a difficult week at the PSX, where renewed US-Iran tensions pushed the benchmark KSE-100 down 2,368 points, or 1.3% WoW, to 175,329 on Friday. The subdued performance was primarily due to the escalation of the conflict following US strikes on Iran and subsequent Iranian attacks on US air bases in the region. Despite the weekly decline, the KSE-100 remained 0.7% higher since the beginning of 2026. The KSE-All Share Index lost 1.2% during the week to 106,443, while the KSE-30 declined 1.2% to 52,295 and the KMI-30 fell 0.6% to 250,239. AKD Securities said the deterioration in sentiment was partly offset by Pakistan's record $3 billion dual-tranche Eurobond issuance, which achieved the country's lowest spreads over US Treasuries in two decades and represented its largest international capital market transaction. The brokerage sees valuations as supportive, putting the market's forward price-to-earnings multiple at 7 times. From the current KSE-100 level of 175,329, AKD's 263,800-point December target implies an increase of roughly 50% if achieved. Arif Habib Limited, using its own valuation framework, said the KSE-100 was trading at a price-to-earnings multiple of 7.8 times and offering a dividend yield of 6.3%. Its regional comparison showed Pakistan with the lowest P/E among the 10 Asian markets presented and the highest dividend yield and return on equity, at 6.3% and 20.1%, respectively. The macroeconomic picture during the week, however, remained mixed. Consumer inflation accelerated to around 11.1% in August from 9.2% in July, while Pakistan recorded a $3.2 billion trade deficit. Exports rose 3.8% year-on-year to $2.5 billion, but imports also increased 7.4% to $5.7 billion. Tax collections provided some fiscal support. FBR collected Rs902 billion in August, up 2% from a year earlier but Rs28 billion short of its monthly target. Collections for the first two months of FY2027 reached Rs1.722 trillion, up 5% and Rs12 billion above the Rs1.710 trillion target. The government repaid a record Rs1.2 trillion of central bank debt, while SBP foreign exchange reserves increased by $19 million during the week to $17.1 billion as of August 28. Cotton arrivals, meanwhile, increased 27% year-on-year to 1.7 million bales in August. Energy prices remained a key external risk. Brent crude reached a six-week high of $97.6 per barrel during the week amid the US-Iran escalation. Spot Brent ended September 4 at $101.67 per barrel, up 13.33% week-on-week, while WTI rose 8.3% to $90.32. Coal increased 13.86%, while gold declined 1.13%. Sector performance reflected the broader weakness. Banks shaved 1,318 points off the KSE-100 during the week, followed by cement with 334 points, exploration and production companies with 194 points, technology with 185 points and power with 126 points. Investment banks added 151 points and fertiliser companies contributed 82 points. At the company level, EFERT was the largest positive contributor, adding 177 points, followed by ENGROH with 159 points, OGDC with 82 points, THALL with 31 points and ILP with 26 points. UBL was the biggest drag, subtracting 555 points, followed by HBL at 252 points, PPL at 232 points, MEBL at 142 points and LUCK at 139 points. In percentage terms, PGLC led weekly gains with a 21.5% increase, followed by THALL at 4.8%, EFERT at 4.6%, TPLRF1 at 2.6% and ILP at 2.5%. Among major losers, PSEL declined 7%, SRVI 5.2%, KOHC 4.9%, LOTCHEM 4.8% and SEARL 4.7%. Investor flows also showed continued caution. Foreign investors were net sellers of $7.16 million during the week, driven primarily by $12.04 million of selling by foreign corporates, partly offset by $4.88 million of net purchases by overseas Pakistanis. Foreign selling was concentrated in commercial banks, which recorded net outflows of $6.69 million. Among local investors, banks and DFIs were net buyers of $64.16 million, individuals bought a net $17.05 million, and companies purchased $7.29 million. Mutual funds, by contrast, sold a net $83.35 million. Average traded volume was 766.7 million shares, up 7.6% week-on-week, while average traded value declined 6.1% to $119.7 million. KSE-All market capitalisation reached Rs19.629 trillion, equivalent to around $71 billion, down 1.3% over the week. AKD Securities expects the market to improve on strengthening economic indicators and the government's fiscal position, while moderating inflation could increase the likelihood of interest rates returning to single digits by the end of the year. It added that a potential US-Iran agreement could pull international oil prices back towards pre-conflict levels. Arif Habib Limited (AHL), meanwhile, struck a more cautious tone, saying market direction would remain sensitive to geopolitical developments. However, it expects the ongoing earnings season, where corporate results have largely remained positive, and the upcoming IMF review to provide support. Intermarket Securities said in its weekly review that near-term sentiment is likely to remain driven by developments around the Strait of Hormuz, the upcoming IMF review and progress on domestic reforms.