Pakistan’s stock exchange that has already been marred by weak macroeconomic parameters received a blow after Indian military carried out missile attacks inside the country. It plunged by whopping 6,482 points in just one day, wiping out PKR 1.3 billion of investors. This shows how vulnerable it is to the deteriorating macroeconomic fundamentals and geopolitical tensions. The Pakistani stock exchange PSX has remained very sensitive to the domestic and external problems, showing high volatility and causing huge losses to the investors over the years. 

In 2014, it fell by 4.6 percent, fearing uncertainty after the opposition parties held a march against the government. Commenting on the sharp decline, Farhan Mahmood, a research analyst at Karachi-based Sherman Securities, had said “This is the largest ever fall in the stock value in one day as panic grips investors.” Notably, the development had occurred after the country had managed to improve its foreign exchange reserves and ensuring the country’s outlook switching from ‘negative’ to 'stable' by rating agency Moody’s. 

It was the biggest stock market fall in the six-seven years, which did not only erode the investors’ confidence but also weakened the Pakistani currency PKR. Pakistan’s important stocks, Oil & Gas Development Corporation and MCB Bank, saw a sharp decline. The stock market fall was said to have had a negative impact on the country’s economy since it undid the reforms implemented in the previous years. “Plans for protests will sabotage the peace needed for economic uplift,” said the then Prime Minister Nawaz Sharif. 

In 2008, Pakistani stock market crumbled after former Prime Minister Benezir Bhutto was assassinated. It had fallen by 4.7 percent, causing panic in the market. Nasim Baig, chief executive of Arif Habib Investments, had warned that the market was at the risk of being collapsed. “The likelihood is that foreign portfolio investors would start pulling out. If that happens that would mean a serious amount of selling,” he had said. While the losses were quick and massive, there was uncertainty over the recovery.

Interestingly, the market operations were suspended for three days after the assassination. Yet, market saw the drop of 4.7 percent when in opened five days after the assassination. "It was a bit unpredictable," a market watcher Akif Moshtaq had said. The assassination had affected the transition of military rule to the civilian-led democratic government. So there were concerns over the security, which led the foreign investors to resorts to pulling out their money from the Pakistani market. “The longer the uncertainty persists, the longer the damage and deeper the damage will be,' Nadeem Naqvi, chief executive of AKD Securities had said then.​

Even minor attacks by militants causes the PSX to react violently. In 2009, it fell by 10 percent over a week following the fatal clashes between Pakistani Army and militants in North Waziristan. It saw intraday drop of 435 points following a suicide bombing in Lahorein 2017. Commenting on the fears over security situation and potential stock market landslide, Elixir Securities analyst Faisal Bilwani said “Market opened negative on thin volumes after Monday’s terrorist attack brought back concerns over law and order while oils led losses on lower global crude.”

In November 2024, the PSX plunged by massive 3,505 points due to growing political instability in the country. Pakistan experienced constant political noise after Imran Khan was ousted. Moreover, State Bank of Pakistan's removal of the Minimum Deposit Rate on conventional banks for companies aggravated the problems for Pakistan’s financial market.“Stocks remained bearish due to political uncertainty and concerns over foreign outflows," said Ahsan Mehanti, Managing Director of Arif Habib Commodities. “Panic selling was witnessed at the PSX amid political turmoil following prolonged PTI protests in the capital.”

Now, the latest military conflict has shown how PSX has been vulnerable to external factors as well. While Indian stock markets show slight decline, the PSX witnessed massive sell-off after both countries engaged in armed clashes. “Since the Pahalgam attack the Karachi index is down over 6 percent while the Nifty is up around 1 percent,” said Dr VK Vijayakumar, Chief Investment Strategist, Geojit Investments. “The fact that the (Indian stock index) Nifty closed in the positive territory today while the Karachi index is down is an indication of the higher vulnerability of Pakistan.”