Karachi: Asian equity markets experienced a decline in July 2026, influenced by renewed unrest in the Middle East and a resulting surge in oil prices. This turbulence led to monthly declines in markets across Pakistan, China, Taiwan, Vietnam, and South Korea. Pakistan's KSE-100 Index notably dropped 2.3 percent month-over-month, reducing its calendar year-to-date gain to a modest 1 percent. However, as the earnings season began and progress was made on the refinery policy, banking and refinery stocks outperformed the broader index.
According to JS Global, Brent crude prices soared to $100 per barrel in July due to the resumption of U.S.-Iran military airstrikes and escalating regional tensions, causing disruptions in energy supplies through strategic waterways. Oil prices later corrected as the airstrikes were temporarily paused. In Pakistan, the government introduced a daily fuel price revision mechanism in accordance with IMF directives, leading to a 12 percent increase in petrol prices and a 26 percent rise in diesel prices month-over-month.
The State Bank of Pakistan maintained its policy rate at 11.5 percent during its monetary policy meeting in July. The central bank conveyed optimism about inflation moderating in the coming months, projecting a decline to approximately 7 percent by the end of the next fiscal year. Despite geopolitical uncertainties, the SBP forecasts foreign exchange reserves to reach $20.2 billion by December 2026, buoyed by a projected 6 percent year-over-year increase in workers' remittances and a recovery in exports.
S&P Global Ratings upgraded Pakistan's long-term sovereign credit rating to 'B' from 'B-', a return to this rating level after nine years. The upgrade reflects Pakistan's improved external position and gradual macroeconomic stabilization.
Investors are advised to remain cautious, closely monitoring developments in the US-Iran conflict and energy prices, while evaluating entry points in the market. Upcoming corporate earnings announcements, the MSCI Quarterly Index Review, and developments in the Auto Policy 2026-31 and refinery policy are expected to influence stock-specific activity in the near term.