Pakistan Stock Exchange Surges to Record Highs Amid Surge in Retail Investors

Pakistan’s PSX has surged to standout global returns, drawing record retail accounts. The article weighs the boom’s macro drivers against risks from low valuations and equity underuse.

What Pakistan’s record stock market boom reveals— and conceals— about the economy

By Ibrahim Aftab

In a country where real estate and gold have long reigned as the assets of choice, a quiet revolution is unfolding on the trading floor. Equity markets are widely regarded as a benchmark of investor confidence and overall economic growth, and the Pakistan Stock Exchange (PSX) has emerged as one of the few standout performers in Pakistan’s otherwise challenging economic environment. By the end of 2025, it had delivered an average annual return of around 60 percent, making it one of the best-performing equity markets in the world. More importantly, it attracted a new generation of investors: during fiscal year 2025–26, a record 190,277 new accounts were added— a 48 percent increase in a single year, the highest growth ever recorded in PSX’s history.

This reflects growing retail participation, especially among young investors— a positive sign for an economy where only about 15 percent of GDP is invested in the equity market, while the majority of the public still seeks quick gains in the highly speculative and extractive real estate sector.

Overall macroeconomic stability— a sharp fall in inflation (before the Iran war), successive interest rate cuts by the State Bank of Pakistan (also before the war), rising central bank reserves, and Pakistan’s unusually strong diplomatic standing— has driven this rally. Although the growth has been outstanding, caution is warranted: Pakistan’s equity market remains relatively small. As of June 2026, it is valued at around $59 billion, one of the lowest valuations in Asia, and equities remain the least favored domestic asset class, with real estate, gold, and the auto sector still dominating investor preference. This dynamic cuts both ways: it raises the market’s perceived risk, but also points to greater upside potential, since most listed companies still trade at low price-to-earnings ratios.

However, the long-term success of the PSX will not be measured only by how high the index climbs, but by whether the institution develops into a strong capital market— one where businesses can finance innovation directly, rather than lobbying for interest rate cuts because banks are unwilling to finance them. Raising capital through equity markets is the preferred route in the West, whereas in Pakistan the opposite is generally true. Shifting toward equity financing would not only widen access to capital for businesses, but would also let ordinary citizens become partners in the country’s biggest firms. Beyond the recent surge in share prices, then, the greatest gains for Pakistan’s capital market may still lie ahead

The main drivers of this remarkable growth have been the banking, fertilizer, energy, and cement sectors. Critics argue that these sectors benefit disproportionately from favorable government policies— subsidies, eased regulation, and access to cheap inputs such as gas and electricity— while the federal government remains the banking sector’s most preferred client, often at the expense of the private sector. There is some substance to these claims, but it is worth remembering that such sectoral concentration is a common feature of markets internationally. In the USA, for example, Tesla, Microsoft, NVIDIA, Meta, Alphabet, and Amazon accounted for two-thirds of the S&P 500’s gains in 2023, despite representing only 31 percent of the index’s total market capitalization. An even starker example is South Korea’s KOSPI index, where just two companies— Samsung and SK Hynix— account for 56 percent of the index, making it one of the most concentrated markets in the world.

In recent years, several companies have entered sectors that were previously unfamiliar to them or long dominated by established players, particularly in IT and retail. These firms have shown that, with capable management and a broad strategic vision, Pakistani companies can compete in technologically advanced manufacturing and create real value— even in sectors like automobiles that have traditionally been dominated by a handful of players— and can do so not only locally but in export markets as well.

Markets are driven by expectations and sentiment. The recent Middle East conflict, and the supply chain bottlenecks created by the resulting energy crisis, have further shocked the global economy. Inflation is already rising, the State Bank has already raised interest rates, and this shock looks set to hurt both the global and Pakistani economies through higher prices. Yet despite the crisis, markets have shown resilience— they have recovered quickly and have not fallen to the levels many experts predicted at the start of the war, given its magnitude. This suggests the market is well-positioned to bounce back even stronger this time.

However, the long-term success of the PSX will not be measured only by how high the index climbs, but by whether the institution develops into a strong capital market— one where businesses can finance innovation directly, rather than lobbying for interest rate cuts because banks are unwilling to finance them. Raising capital through equity markets is the preferred route in the West, whereas in Pakistan the opposite is generally true. Shifting toward equity financing would not only widen access to capital for businesses, but would also let ordinary citizens become partners in the country’s biggest firms. Beyond the recent surge in share prices, then, the greatest gains for Pakistan’s capital market may still lie ahead.

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