Geopolitical tensions and investor resilience

The most recent decline in Pakistan Stock Exchange (PSX) has triggered panic in the investor fraternity amid US-Iran war. After rallying to one of the highest indexes in the history of PSX, the rapid decline created apprehensions among investors and traders. Investors anxiously contemplated their decision to hold or to sell their entire portfolio or portion of it at reasonable exit price. Investors’ reaction to current perplexed market situation is understandable but not desirable. This also exhibits deeper structural issues in Pakistan’s financial ecosystem, which extend beyond simple market volatility itself. Stock market surges and declines around the world is a normal phenomenon. However, Pakistan has the history of abrupt surges and declines in index, where each incident is accompanied by fear and uncertainty among investors. Earlier, during the COVID outbreak, PSX witnessed catastrophic decline of approximately 25 percent, whereas similarly political uncertainty in 2022 contributed to another steep decline. News of likely sovereign default surrounding Pakistan in 2023 pushed investor sentiment to its lowest level. Geopolitical tensions between Pakistan and India in May 2025 took a toll on PSX by plunging it by 10 percent. Every repeated episode, driven by the popular narrative that ‘this time it will be different’ felt like a breaking point, yet the market demonstrated resilience by bouncing back and delivering significant gains to those who stayed invested. This recurring pattern exhibits a critical paradox, while recovery by the market over the time tends to favour certain individual with patience to withstand the sour time, others fail to materialize this gain because of impatience and throw it away. The behavioural aspect of the participants overpowers the market dynamics, by engaging in panic selling. The overreaction by investors without long-term planning leads to excessive downside pressure on aggregate market index. The problem lies in preparedness and interpretation of the situation than actual volatility of the market. It is a well-established principle in finance that “time in” the market is more important than “timing” the market. While, this principle gets supported by stable institutional framework, financial literacy and long-term investment culture in developed economies. In developing countries, such as Pakistan structural deficiencies hinder application of this principle in true spirit. Financial market participants in Pakistan lack timely information, investment guidance and institutional trust. During the time of distress inadequate informational support from regulators creates vacuum in the market where unfiltered information sweeps in and compounds the existing precarious situation. Whereas, unimpeded flow of credible information from regulatory authorities especially in the period of crisis is essential to avoiding the system being blown off entirely. There must be systematic support and encouragement for individual investor to promote emotional literacy along with financial literacy to handle stressful situations. It is extremely important to overcome the erratic behaviour of investors during volatile situations such as faced by global stock markets due to current ongoing conflict in the Middle East. Tumultuous periods like the one faced by the global economic market presently enhance the role of regulatory bodies such as SECP to act proactively by assuaging market sentiments through timely communication with investors and intervention in the market. It is evident that most of the hue and cries in the market are products of unverified news and unwarranted social media tweets by political leaders. Once the information pours in, it eventually galvanizes the sentiments of investors that result in selling pressure. Stock market does not operate in vacuum, rather it takes imputes from external factors, such as positive news, political narratives, expectations, and confidence. Finally, it is imperative to develop sense of resilience in financial decision-making process through the adoption of buy-and-hold strategy, especially in the times of downside movement in the stock market due to external factors. Investment decision criterion must not be solely left at exogenous factors to determine but fundamentals change to underlying investment must be an inherent criterion. The distinguished feature of successful investor is that he or she is never deterred by short-term losses in investment in pursuit of long-term gains. The belief that volatility or correction is an inherent feature of stock market and is not a flaw keeps such investors determined to pursue their long-term goals. The ability to navigate effectively through distressful events represents the rational attitude of an investor. It reflects confidence in the market’s rise-fall cycle by accepting it as an inherent feature of the stock market. The recent KSE-100 decline to 144119. 43 and partial recovery to 174523. 76, therefore, should not only be seen as a financial event, but as a reminder of deeper structural challenges. Markets will continue to rise and fall—that is their nature. The real question is whether investors and policymakers are equipped to navigate these cycles effectively. History suggests that markets recover. The more important question is: when they do, who will still be invested to benefit from that recovery? Copyright Business Recorder, 2026

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