Karachi: The Board of Directors of UBL Fund Managers Limited has released its annual report for the Al-Ameen series of funds, detailing the economic challenges faced by Pakistan during the quarter ending September 30, 2026. The report comes amid ongoing tensions in the Middle East which have had significant repercussions for the country's economy and stock market.
The first quarter of the fiscal year 2027 was marked by persistent tensions in the Middle East, which resumed in early July 2026 after a brief ceasefire. These tensions contributed to a 5.7% decline in the benchmark KSE100 index, which closed at 169,969 points. Trading volumes also saw a drop of 12.0% to 306 million, the lowest since the fourth quarter of fiscal year 2025. The refinery sector was the only major positive contributor due to the signing of a new brownfield refinery policy, while other sectors negatively impacted the index. Mutual funds and banks were major sellers in local portfolio investments, whereas individuals and companies were on the buying side.
On the macroeconomic front, the Consumer Price Index averaged 10.2% year-over-year in the first quarter of FY27. This marks the second consecutive quarter of double-digit inflation, attributed mainly to hikes in electricity and petroleum product prices. Food inflation rose to 10.3% due to a sharp increase in wheat prices by 17% quarter-over-quarter, reaching PKR 4,894 per maund. The Federal Board of Revenue collected PKR 3.08 trillion, exceeding the quarterly target by PKR 30 billion, with a year-over-year growth of 6.7%.
Externally, the current account deficit declined by 36.3% year-over-year to USD 543 million, despite an 18.8% increase in the trade deficit to USD 6.2 billion. This improvement was supported by a 14.7% growth in remittances to USD 7.3 billion. The import bill increased by 11.3% due to higher commodity prices. According to information available from the Pakistan Stock Exchange (PSX), Pakistan also saw a credit rating upgrade by Moody's in August 2026 to 83 from Caal, following a similar upgrade by S&P Global in July 2026. Consequently, the government raised USD 3 billion through a Eurobond issuance in September 2026.
Foreign exchange reserves held by the State Bank of Pakistan (SBP) increased by USD 3.0 billion to USD 21.4 billion, the highest in recorded history, aided by the Eurobond receipt. Additionally, Saudi Arabia rolled over USD 5 billion in deposits for three years, easing Pakistan's external debt repayments.
In the debt market, volatility persisted due to fluctuating monetary policy expectations and geopolitical developments. The SBP maintained the policy rate, but market sentiment was affected by rising tensions and inflationary concerns. Treasury Bill auction participation was robust, with bids totaling PKR 16.717 trillion, and the government raised PKR 5.715 trillion. The 1-month tenor attracted the most demand, accounting for 40% of total bids.
Fixed-rate Pakistan Investment Bonds saw steady participation with bids totaling PKR 3.415 trillion. The government raised PKR 1.1 trillion against a target of PKR 1.0 trillion, with investor demand for higher yields. No floating-rate PIB auctions were conducted during the quarter.
Investor demand for fixed-rate Ijara Sukuk was strong, with PKR 2.4 trillion in bids. The government raised PKR 882 billion, introducing 3-month and 6-month Sukuk to provide additional short-term investment options. Variable rate Ijara Sukuk auctions attracted PKR 3.3 trillion in bids, with the government accepting PKR 519 billion against a target of PKR 525 billion.
The yield curve saw minor and moderate moves in various tenors, with the 3-month tenor at 11.64, a minor move from 11.6 at the end of June 2026, and the 1-year tenor at 12.2, a moderate move from 11.6. The 10-year tenor closed at 12.74, marking a moderate move from 12.19.