How to Think About Your Portfolio When War Breaks Out

When geopolitical shocks hit—whether it's Russia-Ukraine, India-Pakistan, or US-Iran—the entire fundamental basis of investing gets challenged. If you're an investor, especially a one-time investor, you need to understand what this means for your money.

Let me walk you through how currency depreciation, interest rates, and stock markets all move together in these moments. And more importantly, I'll show you why, in Pakistan, the economy matters more than the stocks themselves.

The Post-War Rally (and Why This Time Is Different)

If you look at the State Bank's actions, you'll see the interest rates. If you look at the stock market, you'll see the rally. In war, there are no military targets that matter more than the economic ones—refineries, petrochemical plants, LNG terminals, and gas processing plants. These are the things that will have a real impact.

If you're in the market, you'll see the quantity changes. Just think about a potential Strait of Hormuz blockade. In that scenario, we'd see something unprecedented in the last four years of rally.

Here's something important to understand: the last rally was based on FY23 and FY24. In FY26, we're now seeing the base of Pakistan's economic stability. But look, if you're confused about what time period you're operating in, you're not going to make quantum leaps in your thinking. So let's get this straight.

In Pakistan, the Economy Matters More Than Stocks

If the economy is weak, you'll start to understand it before the stock market shows it. Stocks fall when the economy falls. But I'll tell you, Pakistani markets are different. They're biased in ways that don't always align with global patterns.

Let me explain with a real example: COVID.

I didn't get any salary bracket during COVID. I didn't get any experience of that kind of market. It was really troubling. But here's the thing—if COVID entered, I'd be in a certain situation. And the situation before the crisis of 2022 versus the Pakistan of 2026? We were in better shape going into 2022.

This time, we're entering the crisis in a different position. Even if the crisis hits, our fundamentals are different.

Let me compare:

• Dollar inflow or outflow: Better than before
• Exports: Higher
• Imports: Better managed
• Remittances: Stronger
• Trade balance: Closer to surplus

If the pressure got intense, the State Bank wouldn't have to cut interest rates as aggressively. If the economy broke down, the deficit would be imported—that's how it works.

Look at international oil prices. After FY23, oil prices started improving. But we weren't improving with them because we were getting shocks. That's the difference I see between FY22 and FY26.

Now, I'm not saying the market won't drop. But if you look at the dollar, we'll probably get back to 80% of where we were before the crisis. Let me summarize this story:

1. Pakistan's economic crisis creates a gap in the market
2. External shocks are hitting us, but oil prices aren't as bad this time
3. Our economic situation is better than it was in FY22
4. The impact on Pakistan will be a crisis, yes—but stock earnings remain stable

What This Means for Stock Picking

The stocks' earnings are stable. The crisis impacts the stock price, not necessarily the underlying earnings. In Pakistan, you'll see the impact of the economic situation on your portfolio.

For this reason, I'm careful about my time horizon. The stocks I own, I already hold with a certain situation in mind. Before entering a war, Pakistan has a condition. Or there's an external shock. Or I have a prediction that shocks are coming.

But here's the truth: you can't predict shocks. Nobody knows.

So what do you own now? Let me give you an example. When stocks have fallen by 35% or more—check your portfolios. In a crisis, everything falls together: cement, fertilizer, autos, oil and gas, pharma. In crisis, everything falls at once.

But here's the pattern: the initial reaction is solid. Stocks stop falling as quickly after the first wave. The fundamentals keep falling, but if you own a solid stock, the return of the decline will be higher than the market's decline.

Check your portfolios. If you have a good stock with good earnings, those earnings expectations were paid for in the future. The earnings were already paid back.

But if you're not interested in the market, stay out. If you're not interested in the time horizon, and you're not interested in stock picking, then choose stocks that are solid. We call them solid long-growth stocks. We call them a decline—no wait, we call them a decline only when they're falling. But the solid ones, we call them stable long-term growth stocks.

The financial situation is that fundamentals don't change. The market, on average, will see these stocks come back much faster if you keep investing regardless of price.

The Interesting Perspective: Opportunities in Crisis

Before I get into the sectors, here's the thing: because of the crisis, we have no clue whether the impact on Pakistan's economy will be solved or whether we'll get back to 80%. What we do know is this:

Stock market investing is for people who aren't selling. Stock picking isn't about selling. The stock market is a machine that panics. And the time to act is when others panic.

Now let's look at sectors. I'm not interested in giving buy or sell calls here—these are just perspectives. Remember, every crisis is an opportunity only for those who are better prepared, who look at the numbers and the news.

The Urea Opportunity

The government looks at commodities where Pakistan has a surplus or can export. They have to manage the import bill.

Here's something interesting: as of last month, Pakistani companies have been in surplus on urea. This segment is self-sufficient.

If you look at urea companies, you'll see they've been trading at a discount. But now, the government's surplus is becoming a supply for export. If this becomes a lot of urea—and I mean a lot—there's potential for mandatory exports at current market prices.

If Pakistan can fetch even a million dollars from urea exports, in the grand scheme of things, it's a decent number. But if you apply that to companies' balances, your mind will be blown.

Every crisis brings an opportunity for those who have done their homework.

The Gas Sector Gap

Here's another angle. Look at the crisis from the gas system perspective, measured in MMCFD (million cubic feet per day).

Local companies are sitting on excess gas and processing capacity. But here's the issue: LNG (liquefied natural gas) is now closed off. These companies have no production and no new supply contracts.

Last financial year, the number was 61 MMCFD. Now it's around 73 MMCF. But the demand from the domestic side will also come down. So this might not be as big a problem as it seems.

If you look at the opportunity here, you'll see it. But again—I'm not asking you to buy these companies. I'm just showing you that every crisis opens up an opportunity for a few companies.

Replacing Expensive LNG

If you don't have gas, you can replace it. If you don't have a spot to pay LNG—which is much more expensive than long-term contracts—you have alternatives. If you don't have gas requirements domestically, you can buy from producers in Bangladesh.

This is just one example. No buy call on any company. But you can see the interesting perspective.

The Diesel Crisis Math

Here's a practical example. Let's talk about diesel.

A truck moving goods from Karachi to Punjab—south to north—uses one liter of diesel per kilometer. One truck, one liter per kilometer. One liter of diesel. Simple math.

This is a diesel crisis. Prices have gone up dramatically. There may be temporary relief if the government manages subsidies, like they did in FY22.

If the government subsidizes petrol or diesel, the price difference could be around 200 rupees per liter. That's a massive difference in transportation costs.

Now, the government says the subsidies are temporary. Transportation costs aren't going to stay low forever. These are all assumptions, but here's the angle:

Oil marketing companies (OMCs) sell petrol and diesel. Their margins are calculated as a percentage of the final product price. If final prices have gone up by 50%, and margins don't change, they'll need more capital to make the same amount of money.

If you have diesel or petrol available, you'll need more money to hold that inventory.

Again—I'm not saying sell or buy these companies. I'm showing you how to stay prepared. When you look at the crisis from different angles, you'll find opportunities for those who prepared.

Creating Opportunities

If you're looking at the stock market and you're seeing all companies fall together, stop looking at the market. Start looking at individual companies from these angles. This is how you'll spot opportunities.

When events materialize, you'll be able to track fundamental changes. What matters is that you're not trying to be a stock picker in the traditional sense. You're a prepared investor.

Final Thoughts

When we can't predict an event, all our questions about timing have no framework. The only way to protect our investments is to protect our own stocks and stay away from companies that don't have solid fundamentals.

The panic mindset doesn't work in the stock market.

I hope you now have a different perspective on everything that's happening. If you have any comments or questions, drop them below—I'd love to hear your interesting account of how you're navigating this.

Thanks for watching.