New Delhi, June 21 (IANS) Foreign investors pulled out a net $736 million from Pakistan’s equity market in FY26 due to the outflows driven by geopolitical tensions in the West Asia conflict and the country’s downgrade in major global market indices, a report has said.

Citing State Bank of Pakistan (SBP), a report from Arab News said that foreign investors purchased equities worth $298.3 million during the fiscal year but sold shares worth $1.03 billion, resulting in net outflows of $736 million.

Investors from the United States, the United Kingdom and Sweden accounted for nearly 80 per cent of the total outflows, it added.

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.

Pakistan was downgraded from its secondary emerging market status to a frontier market by global index providers MSCI in 2021 and FTSE Russell in 2024.

The move reduced the country’s weightage in benchmark indices and prompted foreign portfolio managers to rebalance their holdings.

Geopolitical uncertainties arising from the Iran conflict also weighed on investor sentiment, leading foreign funds to reduce exposure to riskier regional markets, including Pakistan.

The outflows came despite a strong performance by the Pakistan Stock Exchange (PSX), where the benchmark KSE-100 index surged about 40 per cent during the fiscal year to date.

The report further highlighted that Pakistan’s Economic Survey 2025-26 attributed the market rally to improving macroeconomic indicators, lower inflation, a favourable external account position and rising confidence in the government’s reform agenda.

However, it noted that the momentum weakened from February onwards amid tensions with Afghanistan, escalating regional geopolitical risks, rising global oil prices and foreign investor selling.

The latest figures indicate that FY26 could become the second consecutive fiscal year in which foreign investors withdrew more money from Pakistan’s stock market than they invested, the report said.

–IANS

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