Foreign investors fuel a strong bullish trend at the Pakistan Stock Exchange (PSX).
Pakistan’s stock market delivered impressive returns in 2025, yet foreign investors continued to reduce their exposure. Even with rising share prices and strong index growth, overseas investors showed limited confidence in the market. Data from the State Bank of Pakistan reveals a clear gap between market performance and foreign investment activity.
Foreign Equity Outflows Continue in FY26
According to SBP figures, foreign investors withdrew 393 million dollars from Pakistan’s equity market during the first half of fiscal year 2026. During the same period, foreign inflows amounted to only 142 million dollars. This resulted in net outflows of 251 million dollars between July and December.
These numbers indicate that foreign investors were net sellers of Pakistani shares. This trend continued throughout the period, despite strong market performance and rising investor activity at the local level.
KSE 100 Index Shows Strong Growth
The Pakistan Stock Exchange performed well during the first half of FY26. The KSE 100 Index rose by nearly 39 percent between July and December. It opened the fiscal year at 125,627 points and closed December at 174,472 points.
On a calendar year basis, the index delivered returns of around 51 percent in 2025. This placed Pakistan among the top-performing stock markets globally during the year. The gains reflected strong buying interest, mainly from domestic investors.
Local Investors Drive Market Momentum
Most of the market growth was supported by local participants. Individual investors, institutions, and mutual funds continued to invest in equities. Limited options in other asset classes and high inflation pushed many investors toward the stock market.
Local investors remained confident despite weak economic conditions. They focused on short to medium-term returns and sector-specific opportunities. As a result, trading activity and volumes stayed strong throughout the year.
Foreign Investors Remain Cautious
In contrast, foreign investors stayed cautious. Market analysts say overseas funds are paying more attention to Pakistan’s overall economic situation rather than stock market returns alone. While share prices increased sharply, broader economic indicators remained weak.
Economic growth stayed slow, and living costs continued to rise. Poverty levels also increased, adding to concerns about long-term stability. This growing gap between market performance and economic reality made foreign investors hesitant to increase exposure.
Stock Market and Economy Move in Different Directions
Experts note that the stock market’s performance has become disconnected from the real economy. While certain companies reported higher profits, overall economic momentum remained subdued. For foreign investors, this creates uncertainty about sustainability.
Strong short-term gains are attractive, but long-term risks remain high. Concerns over policy consistency, structural reforms, and economic stability continue to influence foreign investment decisions.
Decline in Foreign Direct Investment
Foreign investment weakness was not limited to the stock market. Foreign direct investment also declined during the same period. SBP data shows that FDI fell by 25 percent during the first five months of FY26.
This decline reflects broader hesitation among overseas investors. Several sectors failed to attract new foreign capital, indicating reduced confidence in long-term business prospects.
Privatisation Efforts Fail to Attract Foreign Buyers
Privatisation initiatives also struggled to draw foreign interest. The government offered incentives such as debt restructuring and policy support to attract investors. However, results remained disappointing.
The planned sale of Pakistan International Airlines attracted bids only from a local group. Despite its international route network, no foreign investor participated. Similar outcomes were seen in other privatisation efforts.
External Pressures Weigh on Investor Sentiment
Analysts point to pressure on Pakistan’s external accounts as a key concern. The trade deficit widened sharply in late 2025. In December alone, the trade gap reached 3.7 billion dollars.
This figure was 24 percent higher than the same month last year and 28 percent higher than November. Rising imports and slow export growth contributed to this imbalance.
Trade and Current Account Deficits Worsen
During the first half of FY26, the trade deficit expanded by over 34 percent. Between July and December, it reached 19.204 billion dollars, compared to 14.271 billion dollars in the same period last year.
The current account position also weakened. From July to November FY26, Pakistan recorded a deficit of 812 million dollars. This reversed a surplus of 503 million dollars in the previous year.
Outlook for Foreign Investment
Market observers say that strong equity returns alone are not enough to attract foreign investors. Concerns over trade deficits, current account pressure, and weak economic growth continue to affect sentiment.
While local investors remain active, foreign participation is likely to stay limited until external indicators improve and economic stability strengthens.
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