Foreign investors have pulled out a net $736 million from Pakistan’s equity market in the fiscal year 2026. Despite purchasing equities worth $298.3 million, they sold shares amounting to $1.03 billion, resulting in the significant outflows. Investors from the United States, the United Kingdom, and Sweden were responsible for nearly 80% of the total outflows.
The main reasons behind the foreign selling were Pakistan’s reclassification in global indices and a rise in global risk aversion due to escalating tensions in the Middle East. Pakistan faced a downgrade from a secondary emerging market to a frontier market by global index providers MSCI in 2021 and FTSE Russell in 2024. This move led to a reduction in the country’s weightage in benchmark indices, prompting foreign portfolio managers to adjust their holdings.
Geopolitical uncertainties stemming from the Iran conflict also impacted investor sentiment, causing foreign funds to decrease exposure to riskier regional markets, including Pakistan. Despite the Pakistan Stock Exchange’s strong performance, with the benchmark KSE-100 index surging about 40% during the fiscal year, the outflows persisted. The Economic Survey 2025-26 of Pakistan attributed the market rally to improving macroeconomic indicators, lower inflation, a favorable external account position, and growing confidence in the government’s reform agenda.
However, the momentum weakened from February onwards due to tensions with Afghanistan, escalating regional geopolitical risks, rising global oil prices, and foreign investor selling. The latest data suggests that FY26 might mark the second consecutive fiscal year in which foreign investors withdrew more money from Pakistan’s stock market than they invested.
