PSX Under Pressure: How the Middle East War Is Changing Pakistan’s Stock Market and What Investors Should Watch Next

Pakistan Stock Exchange Analysis | October 23, 2026

Pakistan’s stock market is facing a difficult question: can the Pakistan Stock Exchange (PSX) continue to deliver returns when geopolitical tensions, expensive oil, inflation and interest-rate uncertainty keep shaking investor confidence?

The recent numbers suggest that investors are becoming more cautious. However, the market is not moving uniformly. Some companies and sectors have demonstrated resilience, while others have suffered substantial selling pressure.

The real story is not simply that stocks are falling. It is about where investors are moving their money, which businesses may be better positioned to withstand the crisis, and whether the next three months could bring recovery or further volatility.

1. PSX Performance: What Do the Latest Numbers Tell Us?

According to market reports, the KSE-100 Index closed at 163,924.31 points on October 22, falling by 2,006.67 points, or 1.21%, in a single session. On October 23, the official PSX Data Portal showed the index at 162,594.10 points at 11:59 a.m., down another 0.81% from the previous close. This was an intraday reading, not the final closing price. Sources: PSX Data Portal and Express Tribune

The decline is part of a broader correction.

According to Arif Habib Limited's figures reported by the media, the KSE-100 had already fallen approximately 3.96% in September. By October 23, the benchmark was under renewed pressure from escalating Middle East tensions and higher international oil prices.

The market has also experienced sharp reversals. On October 21, the index gained approximately 779 points amid optimism about diplomatic efforts and institutional buying. The subsequent sell-off demonstrated how quickly sentiment can change when geopolitical developments turn negative.

Sources: Dawn — October market performance, Pakistan Stock Exchange Data Portal.

2. How Is the Middle East War Affecting PSX?

Pakistan is particularly exposed to international energy prices because it imports substantial quantities of petroleum and other energy products.

The conflict affects the stock market through several interconnected channels.

Higher oil prices increase economic pressure

During the week ending October 18, Brent crude rose to approximately $107 per barrel amid concerns about supply disruptions, attacks on Saudi energy infrastructure and uncertainty surrounding the Strait of Hormuz.

For Pakistan, expensive oil can increase the import bill, put pressure on foreign-exchange reserves and the rupee, and raise transportation, electricity and manufacturing costs.

These developments can weaken corporate earnings expectations and reduce investor appetite for equities.

Inflation could delay interest-rate relief

If higher energy costs feed into domestic prices, the State Bank of Pakistan may have less room to reduce interest rates.

Higher interest rates can make government securities and bank deposits more competitive relative to shares. They can also increase borrowing costs for businesses, potentially affecting investment, consumption and profits.

Foreign investors may become more cautious

Geopolitical uncertainty encourages investors to reconsider exposure to emerging markets, especially those with substantial external financing and energy-import requirements.

The latest reported figures show foreign investors selling shares worth approximately Rs376.5 million on October 22, according to the National Clearing Company data cited by the Express Tribune.

However, foreign selling is not the only force driving the market. Domestic political uncertainty, company earnings and monetary-policy expectations are also contributing to the decline.

Sources: Express Tribune, Dawn.

3. Which PSX Stocks and Sectors Are Still Showing Strength?

A falling benchmark does not mean every listed company is losing value. The important distinction is between stocks showing short-term resilience and companies with sustainable earnings and cash flows.

The following examples are based on recent reported market performance. They are not a recommendation to buy these shares.

Fertiliser: A source of relative resilience

Fertiliser companies have recently provided support to the broader index.

During the week reported by Dawn on October 18, the fertiliser sector added approximately 171 points to the KSE-100, making it the largest positive sector contributor that week.

Fauji Fertiliser Company (FFC) was the leading individual contributor, adding approximately 85 index points. Engro Fertilisers (EFERT) also contributed positively.

Why does this matter?

Fertiliser demand is linked to agricultural activity rather than only to discretionary consumer spending. Established producers may also benefit from relatively predictable demand and dividend distributions.

However, their performance still depends on gas prices, government policies, production costs, agricultural demand and valuations.

Oil marketing companies and refineries: Mixed opportunities and risks

Pakistan State Oil (PSO) and Attock Refinery (ATRL) provided positive index contributions during the week reported on October 18.

This suggests that selected energy-related shares have attracted support even while the wider market has weakened.

However, higher crude prices do not automatically mean higher profits for every energy company. Refining margins, inventory movements, regulated pricing, financing costs and circular debt can substantially affect results.

Investors should distinguish between oil producers, oil marketing companies and refineries because their business models respond differently to the same oil-price shock.

Technology: Selected stocks remain active, but the sector is not uniformly strong

Air Link Communication (AIRLINK) was among the individual stocks that provided positive index contributions in the October 23 market report. Systems Limited (SYS) also contributed positively during the week ending October 18.

Nevertheless, technology shares can be affected by foreign investor flows, exchange-rate movements, international demand and market valuations.

A gain in an individual technology stock should not be interpreted as evidence that the entire sector is outperforming.

Food and personal care: Defensive characteristics

Unilever Pakistan Foods (UPFL) was among the notable gainers reported on October 23. Food and personal-care businesses can sometimes demonstrate resilience because consumers continue purchasing essential products during economic uncertainty.

However, high input costs, weaker purchasing power and expensive valuations can still affect returns.

The key finding: recent strength has been selective. Fertiliser, certain energy-related shares and individual consumer or technology stocks have provided support at different points, but none is guaranteed to remain a winner if market conditions deteriorate.

Sources: Dawn — sector contributors, Express Tribune — October 23 report.

4. Which Stocks Are Facing Greater Pressure?

The latest correction has also exposed several vulnerable areas of the market.

Commercial banks

United Bank Limited (UBL), Habib Bank Limited (HBL) and other major banking shares have weighed on the index during recent selling sessions.

Banks can remain profitable even when their share prices decline, but investors must examine deposit costs, interest-rate changes, loan quality, tax policy and dividend sustainability.

The latest reported nine-month results provide some evidence of continued earnings generation: HBL reported earnings per share of Rs36.84, Meezan Bank Rs41.02 and MCB Bank Rs37.26, according to the October 23 Express Tribune report. These figures are not directly comparable without accounting for each bank's share structure and reporting details.

A falling share price does not automatically make a bank cheap, and a strong dividend does not eliminate capital-loss risk.

Oil and gas exploration companies

Oil and Gas Development Company (OGDC) and Pakistan Petroleum Limited (PPL) have also faced selling pressure.

This may appear counterintuitive when oil prices are high. Higher realised prices can support exploration and production revenue, but investors also consider production volumes, domestic pricing arrangements, receivables, operating costs and the outlook for crude prices.

Cement, autos and power

Cement and automobile businesses can be vulnerable when interest rates remain high and households or companies postpone purchases.

Power-sector companies face their own challenges, including financing costs, payment delays, circular debt and regulatory decisions.

These sectors may recover if economic conditions improve, but their performance will depend on company-specific fundamentals rather than simply a decline in the market index.

Sources: Dawn, Express Tribune.

5. What Are Investors Actually Doing?

Investor behaviour provides another important clue about the market's direction.

Retail investors are increasing their participation

According to the October 18 Dawn report, the PSX recorded approximately 25,280 new investor accounts in September, taking total unique identification numbers to around 656,000, a reported increase of 55% year on year.

This indicates growing participation, although account growth does not necessarily mean every new account is actively trading or investing.

Foreign investors have been cautious

September recorded net foreign portfolio outflows of approximately $22 million, according to the September market review published by Chase Securities.

The latest October figures also show foreign investors selling shares on October 22. Nevertheless, foreign flows can change from session to session, and a single day's selling should not be treated as a permanent trend.

Domestic institutions are not buying everything

The available investor-flow data show a more complicated picture than a simple movement from foreign selling to local buying.

For October 20, a market-flow tracker based on National Clearing Company data reported net foreign buying of approximately $0.74 million. On the same day, mutual funds were reported as net sellers of Rs12.19 billion.

The contrasting figures illustrate why daily flows must be interpreted carefully. Foreign investors, mutual funds, individuals, banks and companies can behave differently, and the trading counterparties must be considered when interpreting net flows.

Dividends and valuations remain important

Dawn reported that the KSE-100 was trading at a price-to-earnings ratio of approximately 7.4 times and a dividend yield of 6.8% in its October 18 analysis.

These figures may indicate that some shares are priced below their historical or international comparables. But low valuations can also reflect genuine risks, including expensive energy, uncertain earnings and weak economic growth.

A low price-to-earnings ratio is not, by itself, proof that a stock has reached its bottom.

Sources: Dawn, BSL investor-flow data, Chase Securities September review.

6. PSX Outlook for the Next Three Months: November 2026 to January 2027

No analyst can reliably predict the next three months without uncertainty, especially during a conflict that can rapidly change global oil supplies and investor sentiment.

Three scenarios are worth monitoring.

Scenario 1: The conflict escalates

If regional hostilities intensify, oil prices remain elevated or shipping through the Strait of Hormuz faces further disruption, Pakistan could experience additional inflation and external-account pressure.

In this scenario, the market could remain volatile, with further downside possible. Highly leveraged companies, businesses dependent on domestic demand and firms with weak cash flows could face additional pressure.

Scenario 2: The conflict continues without a major escalation

If oil remains expensive but supply disruptions do not worsen significantly, the market may experience alternating rallies and declines.

Company earnings, dividend announcements, the State Bank's monetary-policy decisions, the IMF programme and domestic political developments could become increasingly important.

Under this scenario, investors may focus more on company-specific earnings and balance sheets than on broad market momentum.

Scenario 3: Diplomatic progress reduces the energy shock

If tensions ease and international oil prices decline sustainably, Pakistan could benefit from a smaller energy import bill and reduced inflationary pressure.

That could improve sentiment toward banks, consumer-facing companies, cement producers and other interest-rate-sensitive businesses.

However, a diplomatic breakthrough would not automatically resolve Pakistan's structural economic problems. The rupee, fiscal position, external financing, corporate earnings and monetary policy would still matter.

These are conditional scenarios, not price targets or predictions of which outcome will occur.

7. If Wars Become a Regular Feature of Global Markets, What Is the Future of PSX?

The future of the Pakistan Stock Exchange should not be judged solely by whether geopolitical conflicts continue. It depends on how resilient Pakistan's economy and listed businesses become in the face of repeated shocks.

Three long-term factors will be especially important.

First, energy security. Greater energy efficiency, a more resilient energy mix and sustainable management of imported fuel costs could reduce Pakistan's exposure to oil-price shocks.

Second, macroeconomic stability. Sustainable foreign-exchange reserves, a manageable external debt burden, fiscal discipline and predictable economic policy would help the market absorb global shocks.

Third, corporate profitability. Companies with manageable debt, strong operating cash flows, transparent reporting and sustainable dividends may be better positioned to withstand periods of volatility.

The stock market may recover even while geopolitical tensions persist if investors believe that corporate earnings and Pakistan's economic fundamentals are improving. Conversely, even a period of relative peace may fail to produce a durable rally if inflation, policy uncertainty or financial imbalances worsen.

The long-term question is therefore not whether wars will end permanently. It is whether Pakistan can strengthen its economy enough to reduce the damage caused by the next shock.

8. What Should Investors Monitor Before Making Decisions?

Over the next three months, investors should follow:

1. International oil prices: Watch Brent crude and developments affecting the Strait of Hormuz.
2. SBP monetary policy: Monitor the policy rate, inflation data and signals about future interest-rate decisions.
3. The IMF programme: Track review progress, financing requirements and policy commitments.
4. Corporate results: Compare earnings, cash flow, debt levels and dividend coverage rather than relying on share-price movements alone.
5. Investor flows: Monitor foreign portfolio investment and domestic institutional buying or selling over several sessions.
6. Market breadth: Determine whether a recovery is supported by many shares or only a handful of large companies.
7. Valuations: Compare price-to-earnings ratios and dividend yields with company history, earnings quality and the risk-free return available elsewhere.

Investors should also distinguish between short-term trading and long-term investing. Using borrowed money, concentrating a portfolio in one sector or buying solely because a share has fallen can magnify losses.

Final Verdict: Is PSX Finished, or Is This a Correction?

The available evidence does not establish that the PSX is finished, nor does it confirm that the market has reached its bottom.

What it does establish is that the market has become more sensitive to geopolitical developments, energy prices, interest-rate expectations and investor flows.

Fertiliser shares, selected energy companies and certain individual stocks have demonstrated resilience at different points. Meanwhile, banking, exploration and production, and other heavyweight shares have also faced significant pressure.

For the next three months, the most useful approach is to watch the interaction between oil prices, Pakistan's economic stability and corporate earnings rather than relying on a single market prediction.

The central lesson for investors is simple: when geopolitical shocks become more frequent, disciplined research, diversification, valuation awareness and risk management become more important—not less.

Disclaimer: This article is for informational and educational purposes only. It is not personalised financial advice or a recommendation to buy or sell any security. Market prices and investor flows can change rapidly. Verify the latest PSX notices, company financial statements and regulatory announcements before making investment decisions.