Markets Under Pressure: Super Tax, Yields and Geopolitical Risk

KSE100: 188k to 179k
Five out of six sessions in red.
What factors have contributed?

1) Earnings Expectations Softened:

• Results prominently below analysts’ expectations.
• Reko Diq review by Barrick introduces execution uncertainty for a major long-term growth project. This has direct implications for associated entities and indirect implications for FX flows and fiscal expectations.
• Yield reversal of 100 bps down and 30–50 bps back up creates MTM pressure on banks.
• Afghan border closure continues to disrupt ~$5–7bn regional trade.

Forward earnings visibility has narrowed.

2) Super Tax Overhang:

• Liquidity tightens inside corporates.
• Dividend expectations moderate.
• Profitability increasingly treated as fiscal buffer.

Capital allocation turns defensive.

3) SBP MPS Tone:

• Growth upgraded.
• Core inflation sticky.
• Immediate rate cut expectations faded.

Equity duration repriced.

4) IMF and Energy Sensitivity:

• Tariff revisions under IMF engagement.
• Industrial relief carries inflation spillover risk.
• Fiscal space constrained

Policy clarity still evolving.

5) External & Geopolitical Risk:

• US–Iran tensions elevate oil sensitivity.
• Global liquidity tighter than expected6) Slight Reallocation Toward Gold.
• Dip in gold prices attracted fresh positioning.
• Coincides with slight rise in dollar rates in the grey market.

Outlook:

We believe equity markets will remain under pressure as geopolitical uncertainty persists and liquidity conditions have not improved.

Global Snapshot
• Dollar firming as hawkish Fed expectations push rate-cut odds lower. More bullish bias
• US Treasury yields volatile but biased higher amid inflation and fiscal pressure
• Oil up YTD on Iran tensions, adding geopolitical risk premium
• Japan’s fiscal stimulus plans risk widening deficits in an already highly leveraged economy
• Rising Japanese bond yields are pressuring global yields higher as capital reallocates across sovereign markets
• Higher global yields imply rising borrowing costs across EM, GCC and Pakistan