Karachi: The KSE-100 Index experienced a significant decline in February 2026, dropping by 8.7% month-over-month to close at 168,000 points. This downturn was primarily influenced by escalating geopolitical tensions between the United States and Iran, as well as recent conflicts along the Pakistan-Afghanistan border. Notably, the index suffered its steepest single-day fall on February 19, with a drop of 6,600 points. Throughout the month, the index closed in the red for 13 out of 19 trading sessions, culminating in a total monthly loss of 16,000 points. Trading volumes decreased due to weakened investor sentiment, with foreign investors recording a net outflow of $279 million, the highest in over a decade, including a one-time transaction of $225 million related to the PIOC deal.

According to JS Global, the geopolitical tensions also affected commodity markets, with Brent oil prices reaching $72 per barrel, a seven-month high, and coal prices peaking at a 12-month high of $99 per ton. Prices of precious metals such as gold and silver also surged by 6% to $5,178 per ounce and $90 per ounce, respectively. These developments are likely to exert further pressure on Pakistan's import bill and inflation, particularly if tensions in the Middle East intensify following Iran's closure of the Strait of Hormuz. Additionally, the rise in coal prices is expected to impact cement companies' margins, especially those in the northern regions already facing challenges due to halted coal imports and reduced cement exports to Afghanistan.

The International Monetary Fund (IMF) mission commenced its third review of the Extended Fund Facility program in Pakistan on February 26, 2026. The mission's focus includes reviewing fiscal performance, tax collection, structural and governance reforms, and proposals for the FY27 Budget. A satisfactory report and subsequent IMF Board approval could lead to a $1.2 billion disbursement to Pakistan. During discussions with the Pakistan Business Council, the IMF indicated a potential gradual reduction in the super tax rate starting from FY27. A reduction of 2.5% in the super tax could result in a 4-5% earnings boost for corporates and banks.

Investors are advised to remain cautious amid ongoing geopolitical unrest in the Middle East and neighboring regions. While escalating tensions could affect market sentiment, improving domestic fundamentals offer some resilience. However, elevated oil prices pose a significant risk to the country's external account, and prolonged high commodity prices could trigger renewed inflationary pressures.