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The Pakistan Stock Exchange (PSX) has achieved a historic milestone, emerging as the best-performing stock market in the world in US dollar terms over the last two fiscal years, according to data published by Bloomberg.
From FY24 through FY25, the benchmark KSE-100 Index and broader market indicators have witnessed a spectacular rally, reflecting a more than 200% surge in dollar-adjusted returns, beating out global peers including markets in the US, India, Japan, and Europe.
IMF Support Key to Market Turnaround
The PSX’s extraordinary performance follows Pakistan’s successful engagement with the International Monetary Fund (IMF) in June 2023, which played a critical role in stabilizing the country’s macroeconomic outlook.
Facing a balance of payments crisis and dangerously low foreign reserves, Pakistan secured a $3 billion Stand-by Arrangement from the IMF. The bailout provided not only immediate relief but also bolstered international investor confidence in Pakistan’s ability to manage its fiscal and monetary imbalances.
SBP Declares Bank Holiday on July 1
The IMF deal helped avert default fears, unlocked multilateral funding, and catalyzed reforms in the foreign exchange regime, interest rate policy, and taxation structure—all of which laid the foundation for economic recovery and market resilience.
Market Surges Over 200% in Dollar Terms
Since the IMF agreement, the PSX has surged over 200% in dollar terms, making it the top-performing stock market globally, based on Bloomberg’s comparative analysis of major exchanges.
The impressive rise is attributed to several factors:
- Stabilization of the Pakistani rupee, which gained against the US dollar after months of depreciation
- Aggressive policy tightening by the State Bank of Pakistan (SBP), helping tame inflation
- Improved corporate earnings in key sectors like banking, energy, and cement
- Growing foreign and institutional investment, attracted by favorable valuations and a reform-driven economic outlook
For local investors, the KSE-100 Index also posted strong gains in local currency, but the real global headline came from the dollar-based returns, signaling strong performance even after adjusting for currency volatility.
Global Investors Take Notice
The PSX rally has not gone unnoticed by international fund managers and emerging market analysts. Pakistan’s equities, long considered high-risk, are now drawing attention due to:
- Undervalued stocks with attractive price-to-earnings ratios
- Dividends from state-owned enterprises
- A potential reclassification from frontier market to emerging market status if reform momentum continues
Analysts note that a blend of fiscal discipline, external account improvement, and IMF-backed policy credibility has reshaped investor sentiment.
“What we’re seeing in Pakistan is a textbook post-IMF recovery in market terms,” noted a Bloomberg market strategist. “The real test will be whether the reform momentum continues beyond 2025.”
Domestic Sentiment at Decade-High
The stock market rally has also lifted domestic investor confidence. Participation in equity markets has increased significantly, with record account openings, higher trading volumes, and rising mutual fund inflows observed in FY25.
Retail investors, particularly in urban centers, have returned to the market in larger numbers, driven by a combination of:
- Strong index performance
- Better awareness through financial literacy campaigns
- Higher real returns compared to fixed-income instruments
Brokerages are reporting multi-year highs in trade activity, and market capitalization has risen sharply, restoring wealth for long-term investors who weathered previous downturns.
Challenges Remain Despite Bullish Momentum
Despite the stellar performance, experts caution that structural vulnerabilities in the Pakistani economy still pose risks to sustained market growth. These include:
- A still-narrow tax base
- Heavy reliance on external borrowing
- Inflation volatility
- Ongoing political uncertainty
Moreover, future IMF engagement—whether through a new extended facility or post-program monitoring—will influence how much of this rally can be sustained in the medium term.
Outlook: Can the Bull Run Continue?
With general elections concluded and a new government in place, market participants are closely watching fiscal policy, privatization plans, and energy sector reforms to assess whether the positive momentum can continue.
If macroeconomic stability is maintained and reforms are deepened, analysts believe the PSX may continue outperforming regional peers, particularly in a global environment of elevated risk aversion.
