Paykistan

Inside the Pakistan Stock Exchange Crash: Global Turmoil and Local Impact

Written by

fahad

in

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Key Points

  • Research suggests the Pakistan Stock Exchange (PSX) crashed on April 7, 2025, with a 6% drop, leading to a 45-minute trading halt, amid global market turmoil.
  • It seems likely that the crash was triggered by US President Donald Trump’s tariff announcements, causing a global stock market sell-off.
  • The evidence leans toward global recession fears impacting Pakistan, despite its economy showing signs of stability, with low inflation and growth projections.

Introduction

On April 7, 2025, the Pakistan Stock Exchange experienced a significant crash, reflecting broader global economic instability. This event, marked by a temporary trading halt, was part of a worldwide market downturn triggered by US policy changes. Below, we explore what happened, why it occurred, and how it fits into both global and local economic contexts.

Global Context

The global stock market crash began on April 2, 2025, following President Trump’s announcement of sweeping tariffs, escalating fears of a trade war and recession. This led to significant declines in major indices like the Dow Jones, S&P 500, and Asian markets, with Japan’s Nikkei dropping nearly 8%.

Pakistan’s Market Crash

The PSX saw its benchmark KSE-30 index fall by more than 6% or 7,200 points, prompting a 45-minute trading suspension to curb panic selling. Analysts noted that global recession fears, amplified by US tariffs, were key drivers, though Pakistan’s domestic economy had shown recent stability.

Pakistan’s Economic Background

Despite the crash, Pakistan’s economy in 2025 was reportedly stabilizing, with inflation at 0.7%—the lowest in 30 years—and projected GDP growth of 2.8%. Increased foreign direct investment and remittances suggested resilience, yet the stock market was vulnerable to global shocks.

Survey Note: Detailed Analysis of the Pakistan Stock Exchange Crash on April 7, 2025

Overview of the Event

On April 7, 2025, the Pakistan Stock Exchange (PSX) experienced a significant crash, with the benchmark Karachi Stock Exchange (KSE) index slumping by 6% or more than 7,200 points. This led to a 45-minute trading halt, resuming at 1:03 pm local time, as a measure to safeguard against panic selling during extreme volatility. The halt was triggered by a 5% decrease in the KSE-30 index from the previous day’s close, utilizing automatic circuit breakers to allow investor reassessment.

Global Context: The 2025 Stock Market Crash

The crash in Pakistan was part of a broader global economic downturn that began on April 2, 2025, following US President Donald Trump’s “Liberation Day” announcement of sweeping tariffs. This policy, aimed at economic autonomy and protectionism, heightened tensions with allies and risked a global trade war and recession. It was described as the largest decline since the 2020 stock market crash during the COVID-19 pandemic, with significant impacts across major markets:

  • US Markets: The Dow Jones lost over 4,000 points in two days, with a first-ever back-to-back loss of over 1,500 points. The S&P 500 saw a 10% drop, and the Nasdaq entered bear market territory.
  • Asian Markets: Japan’s Nikkei index dived nearly 8%, triggering trading curbs, while South Korea’s KOSPI fell over 5%. Other markets like Hong Kong and Shanghai were also affected, with declines up to 9%.
  • European Markets: The pan-European STOXX 600 crashed by 5.8%, marking its steepest one-day percentage decline since the COVID-19 pandemic, with the FTSE 100 dropping almost 5% to a three-month low.

The global market volatility, measured by the VIX, doubled, nearing COVID-19 pandemic levels, driven by fears of recession and retaliatory tariffs, such as China’s 34% tariffs on April 10, 2025.

Detailed Impact on Pakistan

The PSX’s crash was directly influenced by these global events, with investor sentiment in Pakistan affected by the domino effect of international market sell-offs. Yousuf M. Farooq, director at Chase Securities, noted the impact of global recession fears, highlighting how the US tariffs sent shockwaves through emerging markets. The trading halt included the cancellation of all outstanding orders, resuming after a cooling-off period to mitigate further losses.

Table: Key Market Indices Performance (April 3-7, 2025)

Index Country April 3 Close April 3 Change April 4 Close April 4 Change April 7 Close April 7 Change Dow Jones United States 40,545.93 Decrease −1,679.39 (−3.98%) 38,314.86 Decrease −2,231.07 (−5.50%) 37,965.60 Decrease −349.26 (−0.91%) Nasdaq United States 16,550.60 Decrease −1,050.44 (−5.97%) 15,587.79 Decrease −962.82 (−5.82%) 15,603.26 Increase 15.48 (0.099%) S&P 500 United States 5,396.52 Decrease −274.45 (−4.84%) 5,074.08 Decrease −322.44 (−5.97%) 5,062.25 Decrease −11.83 (−0.23%) Nikkei 225 Japan 34,735.93 Decrease −989.94 (−2.77%) 33,780.58 Decrease −955.35 (−2.75%) 31,136.58 Decrease −2644.00 (−7.83%) KOSPI South Korea 2,486.70 Decrease −19.16 (−0.76%) 2,465.42 Decrease −21.28 (−0.86%) 2,328.20 Decrease −137.22 (−5.57%) S&P/ASX 200 Australia 7,859.70 Decrease −75.00 (−0.94%) 7,667.80 Decrease −192.20 (−2.44%) 7,343.30 Decrease −324.50 (−4.23%) EURO STOXX 50 Eurozone 5,113.28 Decrease −190.67 (−3.59%) 4,878.31 Decrease −234.97 (−4.60%) 4,656.41 Decrease −221.90 (−4.55%)

This table illustrates the severity of the global crash, with Pakistan’s market aligning with the downward trend, particularly in Asia.

Pakistan’s Economic Situation in 2025

Despite the stock market crash, Pakistan’s economy showed signs of recovery and stability in 2025. Research from various sources indicated:

  • Inflation Rate: As of April 1, 2025, inflation was recorded at 0.7%, the lowest in 30 years, according to economic reports.
  • Economic Growth: The Asian Development Bank projected a GDP growth of 2.8% for 2025, driven by positive performances in agriculture (1.15%) and services (1.43%) in the first quarter of fiscal year 2024-25.
  • Foreign Investment and Remittances: Foreign direct investment grew by 20% in the first half of fiscal year 2025, and remittances reached a record $35 billion, reflecting renewed trust in Pakistan’s economic trajectory.

However, the stock market’s vulnerability to global shocks was evident, as even a stable domestic economy could not shield it from international turmoil. The IT sector grew by an impressive 28% year-on-year, and initiatives like the Roshan Digital Account attracted over $9 billion in inflows, yet the market crash underscored the interconnectedness of global finance.

Reasons Behind the Crash: Global vs. Domestic Factors

The primary driver of the PSX crash was global, with the US tariff announcements creating a ripple effect. However, domestic factors may have amplified the impact:

  • Dependence on Exports: Pakistan’s economy, heavily reliant on textile and leather exports, could face challenges if global trade wars escalate, affecting investor confidence.
  • Historical Volatility: Past economic crises, such as the 2022-2024 period, left the market sensitive to external shocks, despite recent stabilization efforts.

Analysts suggested that while Pakistan’s economy was on a stronger footing, the global market carnage, with US stock futures signaling an 8% fall, overwhelmed local resilience.

Implications and Future Outlook

The crash highlights the need for Pakistan to diversify its investment base and strengthen risk management strategies. It also underscores the importance of monitoring global economic developments, as emerging markets like Pakistan are particularly susceptible to international volatility. For investors, this event serves as a reminder to reassess portfolios and consider long-term strategies amidst short-term market fluctuations.

In conclusion, the April 7, 2025, crash in the PSX was a manifestation of global economic instability, driven by US policy changes, with Pakistan’s market reflecting broader trends despite domestic economic progress. This incident emphasizes the interconnected nature of global finance and the challenges faced by emerging economies in navigating international market dynamics.

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