KARACHI: Foreign investors in Pakistan sold equities worth over $1 billion this fiscal year, official data and analysts said this week, with an economist attributing the selling to escalating tensions in the Middle East following the Iran war and the country’s reclassification in global indices.
According to data from the State Bank of Pakistan (SBP), foreign investors bought equities worth $298.3 million and sold $1.03 billion during the fiscal year to date, resulting in net outflows of $736 million.
Foreign investors from the US, UK and Sweden account for almost 80 percent of the outflows, economist Muhammad Waqas Ghani told Arab News on Saturday.
“The key drivers behind foreign selling were Pakistan’s reclassification in global indices and a surge in global risk aversion amid escalating Middle East tensions,” Ghani, the head of research at Karachi-based brokerage firm JS Global Capital Limited, said.
Global financial indices FTSE Russell and MSCI Inc. downgraded Pakistan from its status as a “secondary emerging market” to a “frontier market” in July 2024 and September 2021, respectively.
Pakistan’s stock market has come under pressure from its reclassification in major global indices, a move that reduced the country’s weighting in benchmark portfolios and prompted portfolio adjustments by foreign funds.
The geopolitical uncertainties following the Iran war also made foreign investors in Pakistan risk-averse, Ghani noted.
“The foreign investors were pulling capital from all such regional risky markets,” he said.
Prime Minister Shehbaz Sharif’s government has attempted to attract foreign investments in Pakistan’s key economic sector recently. However, as per data from the SBP, FY26 would mark the second consecutive year in which foreign investors withdrew more money from Pakistan’s stock market than they invested.
This is despite the strong rally that the Pakistan Stock Exchange (PSX) witnessed, where the benchmark KSE-100 Index rose 40 percent to 178,922.76 points from the beginning of the fiscal year to date, data from the stock market showed.
The Economic Survey of Pakistan 2025-26 attributed the rally to encouraging macroeconomic indicators, a favorable external account, lower inflation and a fresh wave of investor confidence in the government’s reform agenda.
“The momentum (however) faded toward the beginning of February 2026 as uncertainty emerged in the wake of tensions with Afghanistan as well as escalating geopolitical tensions in the region,” the survey said.
“Higher global oil prices, foreign selling, domestic profit-taking, and the seasonal slowdown during Ramadan led the index to drop,” it added.
As Pakistan’s senior civil and military leadership gear up to attend the US-Iran peace talks in Switzerland on Sunday, Ghani hoped an agreement would bring foreign investment back to Pakistan.
“With sentiment now turning because of the recent US-Iran peace deal, we see foreign flows reversing course next year, making current valuations an attractive opportunity for long-term investors,” he said.
