Islamabad is witnessing a sharp downturn in its financial markets as war fears with India spook investors, sending dollar bonds and stocks into their worst monthly performance since 2023.
War Fears Shake Investor Confidence
The threat of a full-blown conflict at the border has triggered panic selling. Pakistani equities are down 3%, and investors have lost at least 4% in April. In contrast, Indian assets have remained relatively stable.
The situation worsened after Information Minister Attaullah Tarar’s midnight warning on Wednesday that India could launch an attack within 24 to 36 hours.
“The outlook is uncertain… US tariffs are also an overhang,” said Thomas Hugger, CEO of Asia Frontier Capital.
“Only de-escalation can restore investor confidence.”
Fallout of the Pahalgam Terror Attack
Tensions flared after India accused Pakistan of being behind the Pahalgam terror attack, which killed 26 civilians. New Delhi responded with severe diplomatic steps:
- Expelled Pakistani defence staff from its High Commission
- Ordered Pakistani nationals to leave India
- Suspended the Indus Waters Treaty
- Shut down the Attari border
In response, Pakistan denied involvement and retaliated by suspending airspace for Indian flights, a move India has since mirrored.
Military Build-Up at the LoC
Both nations have since ramped up military activity at the Line of Control (LoC), engaging in frequent cross-border fire.
The international community, including the United States, has urged both sides to exercise restraint and avoid escalation.
Financial Markets Under Pressure
On Wednesday alone, Pakistan’s international bonds plunged over 1%, highlighting the growing fear of conflict.
As the situation develops, analysts warn that continued uncertainty will further damage Pakistan’s fragile economy, unless peace talks are initiated.
