Can KSE successfully cross 10,000?

Uncertain and unable to price-in the future, KSE investors have been caught in a dilemma: to push or not to push the benchmark index beyond 10,000 points. Last week, KSE-100 attempted to touch the milestone again - hitting intraday high of 9978 points on Friday, following which it gradually retraced its steps to finish on 9838 points.
Fridays attempt to summit 10k was its second in the week and fourth since the benchmark index crossed 9500 points on September 24 - making it one of the most tiresome of all the ascending moves between 9500-10000 points in KSEs history. It is also the second longest 500-point march to 10k; the longest being KSEs second climb in December 05-January 06.
On the face of it, investors were generally bullish last week, considering the 70-point gain week-on-week amid two attempts to touch the psychological mark. They sidelined the recent outbreak of attacks, inflationary threats arising from crude oils rally to 9-month high, and the IMFs cautionary statement that "further rate cuts will need to be contemplated carefully". The market also seemed to ignore the growing complications in the story of Kerry-Lugar Bill.
But sometimes sheer index movements can be misleading: trading volume last week fell to 158 million compared to 216 million in the week before. Foreign investors sold equities worth $2.77 million in the regular market, as against net buying of $30.4 million in the week before.
Interestingly, the equities sold by foreign investors weren bought by local mutual funds or companies, who cumulatively sold $6.94 million worth of shares last week, after disinvesting $13 million in the week before. All that selling in regular market was absorbed by local individuals who bought to the tune of $9.7 million - implying that small investors are buying the securities dumped by the smart money.
So, even if the market hits 10k this week, a correction is inevitable soon owing to loss of momentum amid overbought conditions and fears of dicey politics ahead.
Arguably, it might be OK to ride out the rally until that day comes; which might be this week, next, or the week after. But when it comes, it will, quite possibly, come with a loud crack - forcing prices down to at least 9300 level. Clearly, the economic fundamentals are less than exciting, as one market analyst put it. The picture today is way gloomier than the one, in KSEs previous ascents to 10,000.

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                          FY05   FY06   FY07   FY08   FY09  FY10 (P)  FY11 (P)

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GDP                        9.0    5.8    6.8    4.1    2.0     3.0         4.2

Inflation                  9.3    7.9    7.8   12.0   20.8    10.5         7.0

Fiscal Deficit*            3.3    4.3    4.3    7.6    5.2     4.9         4.2

Current Account Deficit*   1.6    4.4    5.1    8.5    5.1     4.7         5.3

External Debt *           31.1   28.2   27.3   27.0   28.9    32.1        35.1

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-- as a percentage of GDP - Source: SBP, MoF, BR Research - all figures in %.
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