Pakistan stocks outperform frontier markets with 331% gain since Dec 2022

Pakistan’s benchmark KSE-100 Index has sharply outperformed global frontier markets over the past three years, buoyed by improving macroeconomic stability, aggressive interest-rate cuts and progress on economic reforms, according to a report by JS Global.

The KSE-100 Index has delivered cumulative returns of 331% since December 2022 and is up 51% in calendar year 2025 alone, the brokerage said. That compares with gains of 60% over three years and 42% in 2025 for the MSCI Frontier Markets (FM) Index.

“This performance has been driven by improving macroeconomic stability,” JS Global said, citing stable capital inflows, a cumulative 1,150 basis-point reduction in interest rates, a decline in inflation to single-digit levels and upgrades to Pakistan’s sovereign credit rating by S&P, Moody’s and Fitch.

The report also pointed to the continuation of reforms under the International Monetary Fund program and improved diplomatic and economic relations with friendly nations, including the United States, as key supporting factors.

Despite the rally, Pakistani equities continue to trade at a discount to peers. JS Global said Pakistan’s price-to-earnings discount to the MSCI FM index has narrowed to about 28%, with total market capitalization standing at around $155 billion.

Pakistan’s presence in MSCI indices has also expanded. The country now has 106 stocks in the MSCI Frontier Markets Index, including 76 in the MSCI FM Small Cap Index. During 2025, MSCI added nine Pakistani stocks each to the MSCI FM and MSCI FM Small Cap indices, the report said.

JS Global highlighted several stocks, including NATF, PIOC, CHCC, NML and PAEL, as potential candidates for transfers from the MSCI FM Small Cap Index to the main MSCI FM Index, based on market capitalization and free-float criteria.

Regionally, Pakistan has been among the top-performing equity markets this year. The MSCI Pakistan Index has returned 43% in 2025, outperforming MSCI Emerging Markets at 29%, MSCI Frontier Markets at 42% and MSCI Extended Frontier Markets at 31%, according to the report. The KSE-100’s 51% gain also exceeded returns in most regional markets, trailing only South Korea, which rose 76%.

Foreign participation remains subdued

However, foreign investor participation remains subdued. JS Global noted that Pakistan has seen a net foreign outflow of about $480 million over the past two years, reducing foreign ownership on the Pakistan Stock Exchange to 3.8% of total market capitalization and 13% of free float, down from roughly 9% and 30%, respectively, in 2015-2017.

“Despite meaningful progress on the macroeconomic front, Pakistan has yet to attract significant foreign portfolio investment,” the report said, pointing to geopolitical risks, alternative investment opportunities and lingering concerns over macroeconomic vulnerability.

Looking ahead, JS Global projects average inflation of 6.5% in fiscal year 2026 and 7.4% in calendar year 2026, with real interest rates remaining firmly positive. The firm expects a largely stable currency in the first half of 2026, followed by gradual depreciation, and said at least one more policy rate cut is possible in early 2026.

The report added that lower interest rates have eased the government’s fiscal burden, contributing to improved fiscal balances and recent primary surpluses. Pakistan recorded a current account surplus in fiscal year 2025, supported by import compression and strong workers’ remittances.

While the market has rerated from about 6 times earnings to roughly 8 times, JS Global said further gains are likely to depend less on valuation expansion and more on earnings visibility and dividend growth.