Pakistani households’ propensity to invest has mostly followed a safe route into money markets; however, the fear of equity investments has always loomed large. The question here arises: why do Pakistani households fear equity?
Macroeconomic indicators such as GDP growth, rate of unemployment, interest rates, fiscal deficits, and exchange rate movements, along with the predominant impact of inflation and cultural preferences of safe investing in gold, real estate, and other safe instruments for capital preservation, all these variables have shaped investors’ behaviour patterns and how they perceive uncertainty, leading to the erosion of risk appetite. According to the Pakistan Bureau of Statistics, inflation was approximately 11 per cent in June 2026.
Data from the Association of Mutual Funds of Pakistan (MUAFP) reflects investors’ overwhelming preference for capital preservation over high-risk, high-reward opportunities, while equity funds have seen a small proportion of investment. (MUAFP) reveals that nearly 47pc of mutual fund investments are in conventional and Shariah-compliant money market instruments, while approximately 13pc are in the equity market.
Pakistani investors’ behaviour is also shaped by traditional patterns of wealth accumulation. Tangible assets such as gold, land, and property that can be held and transferred across generations are seen as real or authentic investments, while intangibles are considered speculation, leading to a great divide in selecting safe instruments over long-term ventures into shares, equated to gambling.
Local investors are conditioned to distrust stocks, thus financial guidance is required to inject domestic investment
Rationally, the cause might be attributed to the escalating tension in the Middle East, which has triggered uncertainty in global financial markets, afflicted by an unfathomable mercuriality. However, the key difference between the global investor and the prudent Pakistani investor is that the former has confidence in the equity market and returns to it after the shock. Pakistani investor prefers capital preservation over long-term growth due to inflationary pressure, economic uncertainty, cultural practices & market volatility.
This corroborates Daniel Kahneman and Amos Tversky’s Prospect Theory, which argues that individuals experience the pain of losses more intensely than the satisfaction of equivalent gains, leading to a psychological bias that individuals optimise for avoiding losses rather than for wealth creation; thus, the Pakistani market exhibits a distinctive division in capital allocation.
Investors’ confidence drives the financial market. Between the years 2014-2017, the Pakistan Stock Exchange (PSX) recorded strong growth due to increased and sophisticated foreign investment portfolios, especially the inclusion in the Morgan Stanley Capital International [MSCI] Emerging Markets Index, which boosted investors’ confidence; however, subsequently the market saw a period of decline due to political uncertainty, currency depreciation, high interest rates, and balance of payments pressures.
The shock was later addressed by the International Monetary Fund-led reform plan, which helped improve investor confidence following 2023. As economic stability was restored, PSX regained new heights, reflecting a rise in the KSE-100 index from 62,400 points to 174,000 points. Between 2021 and 2025, the total market capitalisation increased from approximately Rs7.86 trillion to Rs19.69tr. Despite an upward trajectory, the primary market remained underdeveloped, and to date, investors have been gravitating towards safe and familiar investments such as bank deposits, gold, and T-bills.
Another aspect of the investment behavioural trend is financial illiteracy. Whilst Gen Y and Gen Z are seemingly financially literate, the capital investment trend reflects that only around 20-25pc of adults in Pakistan are well-versed with concepts of the equity market mechanism. Many still view it as speculation and refrain from the game. Consequently, the lack of courage to pursue long-term wealth creation is driven by fear of short-term fluctuations.
The inconsistent pattern of income, spending, saving, and investing, and the disparity between salary increases and inflation add more fuel to the lack of confidence in equity-based assets, leading to limited capital formation. In recent times, the closures of multinational companies have also played a pivotal role in annihilating the true character of the equity market.
Companies are heavily relying on financial leverage and slow expansions, with funding constraints eventually affecting long-term production. While domestic capital injections are required in the circular flow, an economy cannot grow if domestic capital doesn’t support local production.
Going forward, Pakistan must maintain sustained macroeconomic policies, strengthen investor protection reforms, and expand financial literacy programmes to encourage households to view equity investment as part of wealth growth rather than speculation. It is also imperative for households to understand investment mechanics and policies rather than only focusing on investment instruments. Many people fail to distinguish between the temporary shocks due to market volatility and permanent capital loss.
Short-term corrections are taken as proof of the inherently unsafe nature of equity, and therefore the core of equity investing, which rewards the patient investor, is missed. Therefore, the concepts of compounding, diversification, risk-adjusted returns, and inflation-adjusted wealth should be made simple for the common investor.
The nuanced argument is that financial guidance should be provided free of cost to inject domestic investment into a broader, more productive arena. The Pakistani investor is conditioned to distrust and fear equity, and it will require a more scrupulous approach to flip the focus towards productive investment for long-term economic growth.
The writer is an audit and finance professional.
Email: Mahambssi@hotmail.com
Published in Dawn, The Business and Finance Weekly, August 10th, 2026
