India-Pakistan Tensions Forecast to Affect Pakistan's Dollar Bond and Stock Market Performance in Upcoming Month
Tensions with India Take a Toll on Pakistan's Financial Market
Investor confidence in Pakistan has taken a significant hit due to ongoing border tensions with India, setting the country on track for its worst performance in dollar bonds and stocks since 2023.
The Pakistani stock market has shown negative reactions, recording a major decline in rupee and dollar bonds in April, underperforming significantly compared to its counterparts. The announcement by Pakistan's Information Minister Attaullah Tarar in the wee hours of Wednesday, stating that India could attack Pakistan within the next 24 to 36 hours, further fueled the market's nervousness and triggered a negative response.
Thomas Hugger, CEO of Asia Frontier Capital Limited, expressed his concerns, stating, "The outlook in the near term is uncertain, so we can expect further weakness because additionally, the US tariffs are an overhang." He added, "Any de-escalation of the tension will obviously calm down the nervousness of investors regarding further deterioration of the fragile relationship between the two countries and we can expect a small rally in bond and equity prices."
As per the latest data, investors have lost at least four per cent during the month of April, and equities are down by three per cent. India's assets, on the other hand, have largely remained unaffected.
The tension escalated after India accused Pakistan of involvement in the Pahalgam terrorist attack that claimed the lives of 26 innocent civilians. In response, India declared Pakistan's defence and security advisors at its High Commission in New Delhi as Persona Non Grata, issued a deadline for Pakistani nationals in India to leave the country, reduced the diplomatic staff in Islamabad, shut down the Attari border, and suspended the Indus Waters Treaty (IWT). Pakistan has denied any involvement in the attack and responded with reciprocal measures, including closing its airspace for Indian airlines, a move that India has since reciprocated.
Since the Pahalgam incident, both sides have been displaying a show of military strength along the Line of Control, exchanging heavy fire. Global powers, including the United States, have called on both parties to show restraint and de-escalate tensions.
It's essential to note that, based on the available search results up to April 2025, there is no direct information about Pakistan's stock market or dollar bond performance specifically tied to tensions with India. However, in India's case, the defense sector saw a surge, with the Nifty Defence Index jumping 4.5% intraday on 28 April 2025, and small- and mid-cap segments in India facing pressure.
Despite the lack of specific Pakistani data, geopolitical flare-ups typically amplify volatility in emerging markets. However, there's no direct evidence confirming Pakistan-specific impacts. To get more precise insights on Pakistan’s markets, local exchanges (PSX) or bond issuance reports would be necessary. The current data mainly focuses on India’s domestic market reactions.
- The looming tension between Pakistan and India is causing a significant decline in investor confidence, particularly in Pakistan's financial market, leading to its worst performance in dollar bonds and stocks since 2023.
- In the realm of business and finance, Pakistan's stock market has shown negative reactions, with a major decline in rupee and dollar bonds in April, outperforming poorly compared to its counterparts.
- The political tension between the two countries has escalated, with tariffs and bonds being indirectly affected, as expressed by Thomas Hugger, CEO of Asia Frontier Capital Limited, who predicts further weakness due to ongoing uncertainty.
- The Delhi government's response to the Pahalgam terrorist attack, which includes declaring Pakistani defense and security advisors persona non grata and closing the Attari border, is causing a ripple effect in the general-news arena, impacting the outlook of Pakistan's foreign relations.
- In the realm of crime and justice, both nations have been displaying a show of military strength along the border, exchanging heavy fire, and face reciprocal measures, such as closing airspace for civilian flights, further straining the already tense relationship.
