Monday’s trading began with the PSX dropping 1,913 points to 168,565 owing to a perfect storm of geopolitics fueled by Iran tensions coupled with a sell-off in the global tech sector that resulted in investor exodus from the market. Crude prices have risen by 3.5%, while Asian markets are falling between 3% to 5%.
KARACHI: Pakistan Stock Exchange kicked off its Monday’s trading day under immense downward pressure, as the KSE-100 Index lost 1,913 points during the initial trading moments, resulting in an index level of 168,565.62; representing a fall of 1.12%. The KSE-100 PSX sell-off during Monday can be attributed to the combination of two strong negative forces – the newly intensified military conflict between Iran-Israel-US, which resulted in a huge increase in Brent crude oil price above the $96 mark, and strong global tech selloff which pushed other Asian markets down by three to five percent before starting Monday’s session in Pakistan.
Selloff on PSX: The Driver Behind the Sell-off
The Monday sell-off of KSE-100 PSX was caused by a significant rise in tensions in the Middle East. According to reports from Israel, the country launched air strikes on military targets in Western and Central Iran, raising the futures prices of Brent Crude oil by about 3.5 percent to $96.45 per barrel. In the case of Pakistan, where a huge portion of energy needs are fulfilled through imports and where energy exploration, production, and distribution constitute a large portion of the indices weighting of the stock exchange, the impact of a $96 oil price cannot be overemphasized.
Sectors contributing to the fall
The selloff in the KSE-100 index of the PSX on Monday was experienced more in sectors which were most vulnerable to risk associated with fluctuating prices of energy and macroeconomic conditions. Automobile manufacturers, cement companies, commercial banks, oil and gas exploration companies, oil marketing companies, power generation companies, and refineries reported losses. It is worth noting that the number of sectors witnessing decline suggests that this is not about individual stocks but a risk aversion strategy across all sectors of the market due to outside forces.
A pair of catalysts led to an unusually tough start to the international trading week. The first was chipmaker Broadcom providing a weak earnings forecast at the end of last week – enough of a shock to the artificial intelligence story for tech shares to get hit hard by a sell-off, resulting in a 4.2 percent drop in the Nasdaq on Friday, while taking the Korean KOSPI Index more than 13 percent off its all-time high. The second was an unexpectedly strong US employment report increasing the likelihood of a Fed rate hike in 2026.
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Signaling rate hikes via US bond yields
US two-year Treasury yields increased by more than 11 basis points on Friday and kept moving up on Monday to close at 4.1782 percent. Higher short-term yields suggest that there is an expectation of an extended period of higher interest rates in the US which would mean tighter liquidity globally, stronger US dollar, and increased attraction towards haven investments versus EM stocks. The situation becomes more problematic for the PSX, which not only faces risks due to geopolitical tensions but also because of a hawkish US interest rate outlook.
Background from Last Week A 2% Decline Before Monday Had Started Trading
The fall in the KSE-100 index witnessed on Monday is part of a trend that was continuing even before the week began. The KSE-100 index lost 3,483.87 points, which is around 2%, during the week ending Friday, due to the buildup of geopolitical risks relating to Iran that affected investors in almost all industry groups. Monday started off with further losses, making the total loss during the last two weeks more than 5,300 points, which means that in two weeks, the market lost more than 5% of its value.
It will depend on whether the conflict between Iran and Israel escalates following the attack news reported on Monday, and whether technology stocks manage to find a bottom in the face of the harsh correction witnessed last week – factors beyond the control of both local players and policy makers.
