Karachi: The stock market experienced significant volatility this week, influenced by geopolitical tensions and economic developments. The benchmark KSE100 Index saw a decline of 1,066 points, closing at 167,089, as Yemen's Houthis expanded their attacks to Saudi Arabia's civilian and energy infrastructure. Ukraine's drone strikes on Russian refineries and concerns about U.S. energy supplies amid Hurricane Isaias maintained Brent oil prices above $100 per barrel.

According to AKD Securities Limited, improved traffic through the Strait of Hormuz and U.S. President Trump's statement of refraining from attacking Iran until after the midterm elections in November 2026 did little to stabilize the market. Economic indicators showed mixed signals with the IMF reaching a Staff-Level Agreement with Pakistan on the EFF and RSF reviews, acknowledging the government's role in navigating Middle Eastern conflicts. Additionally, the State Bank of Pakistan's foreign exchange reserves increased by $15 million to $21.5 billion, while a recent PIB auction raised PkR352 billion with yields rising across tenors.

In the broader economy, banking sector deposits rose by 14% year-on-year by the end of August 2026, and cement offtakes increased by 6% year-on-year in September 2026, indicative of a recovery in construction activity. Cotton arrivals also saw a rise of 5% year-on-year during the same period.

Looking ahead, AKD Securities Limited anticipates market improvement driven by strengthening economic indicators and easing inflationary pressures, which could reduce the likelihood of monetary tightening. Positive developments in the Middle East conflict could potentially moderate international oil prices, serving as a catalyst for market recovery. The market currently trades at attractive valuations with a forward P/E of 7.0x, and top picks include OGDC, PPL, UBL, MEBL, HBL, FFC, ENGROH, PSO, LUCK, FCCL, INDU, ILP, and SYS.