Strait of Hormuz War & PSX Performance
8/31/2026
War is generally not good for economies especially those that are structurally weak, dependent on imports hence global supply chains, are net energy and oil importers, and have limited diplomatic leverage - all of which describe Pakistan. It would be fair to assume that given this confluence of factors that the equities market in Pakistan would be struggling and reacting negatively to this, like how the KSE100 fell 16k points the first day of trading after the war started.
16K
Drop in KSE100 the first day of trading after the war began.
However, things are not linear; mapping the indices values out we can see a dip coming in the market pre-war and a large part of that was driven by the expectation that war is coming, but we see a limited period where the troughs are maintained on the indices and then there is a gradual upward trend. Accounting for equities that traded just before the war and on 21 August we account 63% of equities increased in value, with only 154 decreasing. If we account for only liquid stocks - those that have an average turnover of more than 10k shares for the 121 trading days in the period, the number of equities declines by 63 but the percentage holds.The distribution mapped against the market size of the equities shows a clear positive skewness with quite a few observations above two to three standard deviations.
Another interesting observation is in comparing KSE100 to KSE100PR which indicates that the price return has been muted with a weighted perspective, but headline equities are making good profits which are being reflected in reinvested dividends on the KSE100. However, the benchmark index is not reflecting the value changes that are happening in smaller market capitalization stocks.
To make our analysis more applicable and accurate we normalized the data to only include equities that had an average volume of more than 10k for the 121 trading days that cover this period - the main criteria being that we want to study liquid enough securities that retail investors could partake and invest in. We mark this subset of the data as 'liquid'.
The anomalous performance on the broad equities market is best described by viewing 'Not Liquid' distribution where the number of Small Cap stocks is less than Large Cap or Mid Cap!
The outperforming of equities is limited to market cap but also the GICS industry; the industries with more than double the stocks that are higher relative to those that are lower are from Industries that are more susceptible to economic shocks - with the exception on Insurance.
The headlines show that the equity market is not as healthy as it was at the start of the year when the benchmark index crossed 189k, but the market seems to be in a healthy condition in a wider array but even considering the 14 top weighted equities in the KSE100, 9 of the are higher. The market seems to be doing fine even with the headwinds and uncertainty that comes from the war related to supply chains. Carrying favor with both the warring parties does help with market sentiment and probably that is what is carrying the market.
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