Pakistan Stocks Poised to Remain Top-Performing Asset Class in 2026: Report

Pakistan Stocks Likely to Remain Best-Performing Asset Class in 2026: AHL Report

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

The report projects that equities will outperform all major asset classes next year. The KSE-100 Index is expected to deliver a return of 21.6% in 2026, significantly higher than projected returns from gold (5.15%), silver (7.89%), and T-Bills (10.05%). AHL has set a December 2026 target of 208,000 points for the KSE-100, implying an upside of 21.6% from its closing level on December 23, 2025. The target is based on valuation mapping and a justified price-to-earnings ratio.

AHL highlighted the KSE-100’s strong five-year compound annual growth rate (CAGR) of 31.31%, reinforcing equities’ long-term growth potential. In comparison, alternative investments such as bank deposits (10.81%), USD/PKR (12.45%), and Pakistan Investment Bonds (PIBs) (12.77%) are expected to offer relatively lower returns, making equities the preferred option for growth-oriented investors.

The report pointed to a supportive macroeconomic backdrop, including declining inflation, a stable exchange rate, improving foreign exchange reserves, and a manageable current account deficit. With inflation expected to remain in single digits and policy rates likely to ease gradually, equities are becoming increasingly attractive compared to fixed-income instruments.

Capital market activity is also gaining momentum. AHL expects a surge in mergers and acquisitions (M&A) and Initial Public Offerings (IPOs), with plans for 10 to 12 offerings in calendar year 2026 across sectors such as FMCG, pharmaceuticals, oil and gas, automotive, IT, real estate, and financial services. These offerings are projected to raise Rs20–25 billion, indicating a strong capital-market pipeline.

While corporate earnings growth is projected at a modest 5.9%, the report emphasized that market valuations remain compelling, with the KSE-100’s forward P/E estimated at 8.0x, broadly in line with its long-term average.

AHL also identified structural reforms as a medium-term positive, particularly progress on the privatisation of Pakistan International Airlines (PIA) and ongoing power-sector restructuring. The report described the PIA privatisation as a catalyst for broader economic revitalisation, noting that preparations for the privatisation of IESCO, GEPCO, and FESCO are advancing, with expressions of interest expected in early 2026.

Despite the positive outlook, the report cautioned about key risks, including macroeconomic execution challenges, external vulnerabilities, policy uncertainty, and global geopolitical developments, which could affect investor sentiment and asset performance.

Finally, AHL stressed the importance of Pakistan’s programme with the International Monetary Fund (IMF), warning that failure to meet performance criteria could delay tranche disbursements, weaken investor confidence, increase borrowing costs, and put pressure on the balance of payments.

Overall, the report concludes that equities remain the most compelling asset class for 2026, offering attractive relative value and strong growth potential amid improving economic fundamentals.