Karachi: The KSE100 Index experienced a notable decline of 2.1% month-over-month in October 2026, closing at 166,409 points. This marks the second consecutive month of losses, driven by escalating tensions in the Middle East, including tanker attacks in the Strait of Hormuz and Houthi strikes on Saudi oil facilities. Investors have been cautious, resulting in year-to-date and fiscal year-to-date losses of 4.4% and 7.7%, respectively.
According to JS Research, the market sentiment was initially bolstered by an International Monetary Fund staff-level agreement but was unable to sustain momentum due to geopolitical uncertainties. Foreign investors were net sellers, with individuals absorbing most of the US$48.8 million in net sales. Average daily trading volumes also decreased by 22% month-over-month. Efforts by mediators, including Pakistan and Qatar, to de-escalate tensions have continued amidst hostile responses from the United States and Iran.
Brent crude oil prices surged by 13.6% month-over-month, reaching US$117.64 per barrel, the highest settlement since April, as supply concerns from the Gulf region persisted. Domestically, the government maintained petrol prices for November by adjusting import costs to local refineries. Meanwhile, coal prices remained elevated due to increased demand and supply bottlenecks.
In response to the economic pressures, the Monetary Policy Committee raised the policy rate by 50 basis points to 12%, marking the first hike since April 2026. The decision was influenced by escalating tensions, a deteriorating inflation outlook, and limited prospects for a near-term resolution. The inflation rate stood at 10.3% in September 2026, with the Finance Ministry projecting October inflation to range between 9.5% and 10.5%.
Pakistan secured a staff-level agreement with the IMF on October 7, unlocking approximately US$1.21 billion subject to Executive Board approval. Despite stable foreign reserves at US$21.52 billion, the country faced a current account deficit of US$356 million in September 2026, driven by a widened trade deficit.
Analysts recommend a defensive investment strategy focusing on dividend-yielding stocks to mitigate risks amid declining global oil inventories and inflationary pressures. The need to avoid further escalations in the Middle East is increasingly critical to maintaining market stability.