Dollar bonds and stocks in Pakistan are poised for the worst month since 2023, as escalating tensions with neighbor India roil investor sentiment.
Pakistani stocks are underperforming peers in April while dollar bonds and the rupee also fell, amid the threat of war with neighbor India. Pakistan’s Information Minister Attaullah Tarar Wednesday said India would carry out military action in the next 24 to 36 hours, adding Pakistan would respond “assuredly and decisively.”
Relations between the nuclear-armed neighbours deteriorated after 26 people were killed on April 22 in an attack on an area in the Jammu and Kashmir region. New Delhi has accused Pakistan of involvement, a claim Pakistan has denied.
“The outlook in the near term is uncertain and therefore we can expect further slight weakness since additionally, the US tariffs are an overhang,” said Thomas Hugger, chief executive officer and fund manager at Asia Frontier Capital Ltd. in Hong Kong.
“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,” Hugger added.
Dollar bonds have handed investors a loss of nearly 4% this month, while equities are down almost 3%. Meanwhile, Indian assets are proving relatively immune for now with stocks and local bonds up this month.
Ahead of the incident, investor sentiment toward Pakistan was improving with a rating upgrade and falling oil prices. Stocks were coming off the biggest annual gain in 22 years, setting the stage for further gains as economic activity picked up in the country.
“The fall in bond prices in recent days offers good entry points,” Avanti Save, head of Asia credit research & strategy at Barclays Bank Plc, wrote in a note. She maintains an overweight rating on the country.
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