As India and Pakistan are locked in a deadly border confrontation in Jammu and Kashmir, the share markets, due to the hostility in both nations, are taking a hit.
Pakistan's major stock exchange, also known as PSX KSE 100, plummeted by over 8000 points following a series of drone attacks carried out at some 12 strategic locations in Pakistan.
Shortly after, a massive sell-off triggered by the assault, fearing the uncertainty, sent the markets into chaos.
By the time the dust settled over the issue, Karachi share markets had already incurred huge losses as a result of extensive measures followed by India’s operation Sindoor on the intervening night of 6 and 7.
Similarly, on Thursday night, the Indian side reported a massive “drone and missile incursion” from the Pakistani side in Jammu, Punjab, and Rajasthan, while the attack, according to the Indian armed forces, was repelled effectively from all three places.
However, the effect of the same was also felt on the share markets as both Sensex and Nifty reported over a 1 per cent decline shortly after the markets opened on Friday.
India and Pakistan are incurring losses, although India, having a bigger market, may recover soon. Yet the threat of escalation and anticipation of Pakistani retaliation are making investors nervous and cautious.
Radhika Rao, Senior Economist, DBS Bank Singapore “Recent events are likely to keep foreign investors away, but local investment flows are likely to be sticky, helping serve as a support to the markets.”
“The looming threat of tensions between India and Pakistan has made many hesitant to engage in the market,” the report said.
Morgan Stanley’s funds capitalised on China’s low valuations and stability, avoiding India’s conflict-driven volatility, as Pakistan’s retaliatory drone attacks, reports citing the firm said.
While two hostile and bitter enemies are fighting, China is silently gaining the edge, projecting its economic might and military research and defence prowess through market stability.
After the escalation, Chinese defence stocks experienced significant gains, with some rising by up to 20 per cent on Thursday.
This sharp rise, totalling 36 per cent in just two days, comes as tensions between India and Pakistan escalate following India's Operation Sindoor.
The development has spurred a surge in Chinese defence-related stocks, despite the ongoing regional tensions.
Though it is complex and requires more analytical depth, the figures and investors rallying behind Chinese markets are a clear sign of Beijing capitalising on the conflict between the two nations.
While China's economic prowess is significant, the potential for regional instability could create opportunities for it to expand its influence.
The geo-economics of a nation are significantly shaped by the overall stability of the region it belongs to. India and China are fighting to become the leaders of the Global South.
India, as an emerging power, must avoid confrontations unless and until they become a last resort. Since it triggers a sense of insecurity among the global investors.
Additionally, if instability arises in neighbouring regions, China could be well-positioned to offer economic, political, and even military support, thus gaining influence and control. This could be through investment, infrastructure projects, or even providing a sense of security in a volatile environment.
China's economic interests are closely intertwined with its political ambitions. By seeking to control trade routes, secure resources, and build a more favourable regional order, China aims to project its power and influence, potentially benefiting from any regional instability.
The indication was also apparent when China, after April 22, condemned the Pahalgam attack on tourists but endorsed Islamabad’s stance for a “neutral international probe.”
While China's economic prowess is undeniable, the potential for regional instability could be a key factor in shaping its future influence.
If instability weakens the resolve of neighbouring countries, China could be in a position to expand its influence, leveraging its economic and political resources to fill the power vacuum.
This could involve a mix of soft power strategies like investment and infrastructure projects, as well as harder power strategies like military presence and political manoeuvring.
China is luring investors primarily through its economic stimulus, low valuations, and strategic promotion of stability, rather than explicitly projecting India as an unstable market.
The 2025 India-Pakistan clashes amplify India’s perceived risks, with stock market losses, high valuations, and security concerns driving investors toward China’s recovering market.
Examples like China’s stock rally, defence sector gains, CPEC promotion, and tech sector appeal illustrate this shift.
However, China’s actions are tempered by its economic ties with India and its domestic challenges, suggesting a nuanced strategy of capitalising on India’s vulnerabilities with covert destabilisation.
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