Pakistan stocks to remain best-performing asset class in 2026: AHL

Pakistan Stock Exchange (PSX) is expected to remain the best-performing asset class in 2026, supported by improving macroeconomic stability, easing inflationary pressures, and sustained domestic liquidity, according to Arif Habib Limited’s Pakistan Investment Strategy 2026: The Equity Edge Continues.

“In 2026, equities remain the top choice, with the KSE-100 projected to grow by 21.60%, significantly outperforming gold (5.15%), silver (7.89%), and T-Bills (10.05%),” read the report.

“The KSE-100’s strong 5-year CAGR (Compound Annual Growth Rate) of 31.31% further reinforces its growth potential, while alternatives like bank deposits (10.81%), USD/PKR (12.45%), and PIBs (12.77%) offer lower returns, making equities the preferred asset class for growth in 2026.”

AHL has set a December 2026 target for the KSE-100 Index at 208,000 points, “implying an upside of 21.6% from the closing level on 23 Dec 2025. Our index target is based on target price mapping and justified P/E.”

The report highlights a supportive macro backdrop, marked by declining inflation, a stable currency, improving foreign exchange reserves, and a manageable current account deficit.

With inflation projected to remain within single digits and policy rates expected to ease gradually, equities are increasingly positioned as a more attractive alternative to fixed-income instruments.

The report noted that merger and acquisition and Initial Public Offering (IPO) activity is surging, with AHL “planning 10–12 offerings in CY26 across sectors including FMCG, pharmaceuticals, oil & gas, automotive, IT, real estate, and financial services, projected to raise over Rs20 – 25 billion, signalling a robust capital-market pipeline.”

The report projected corporate earnings growth at a modest 5.9%; however, equities remain the most compelling asset class, offering meaningful relative value. “Market valuations remain compelling, with the KSE-100’s forward P/E estimated at 8.0x, in line with its long-term average,” it said.

AHL also points to structural reform momentum as a medium-term positive, citing the privatisation of Pakistan International Airlines (PIA) and progress on power-sector restructuring as important signals for markets.

“The PIA privatisation transaction is more than a sale; it is a catalyst for broader economic revitalisation,” read the report.

“Momentum is now building across the remaining Phase I assets. Preparations for IESCO, GEPCO, and FESCO are advancing swiftly, with financial advisors on board and Expressions of Interest expected in early 2026, as per media reports. As relatively efficient DISCOs, these entities are being positioned to attract strong investor appetite and set the tone for deeper power sector reforms.”

The report noted that although the outlook remains constructive, risk remain “spanning macroeconomic execution, external vulnerabilities, policy uncertainty, and global geopolitical developments, all of which could influence investor sentiment and asset performance”.

AHL highlighted that the Pakistan programme with the International Monetary Fund (IMF) remains crucial to ensure macroeconomic stability.

“Failure to meet IMF performance criteria could delay upcoming tranche disbursements, creating renewed uncertainty around external financing. Such delays may weaken investor confidence, elevate sovereign borrowing costs, and intensify pressure on the balance of payments, thereby constraining policy room,” it said.