As an addendum, if one was forced to participate in a discussion involving possible short-term market movements, then I think an essential reference point for such a discussion has to be valuation.
And, on that score, I don't find the Australian equity market to be at all "expensive", with the "Market P/E" being around 15x... which is in line with its historical average.
And that's even when one considers that interest rates are as low as they are, meaning that the spread of the market's Earnings Yield over Bond Yields is well above average.
Moreover, given the recovery in the resources sector, which is currently trading as the global reflation trade, if you strip out the resources sector, the relative under-performance of the industrial sector over the past two or so years, and especially the financial services sector, means that non-resources stocks are actually quite undervalued compared to their history (in some cases, justifiably so, but not in the majority of cases).
The other distinction that needs to be made, I observe, is between large and mid-cap companies. Several mid-caps have caught the market's imagination and have performed spectacularly over the past 2 or 3 years, while many large cap stocks (ex-resources) have under-performed.
So, while I think that some pockets of the market appear to be either fairly valued (resources) or overvalued (small and mid-caps), there is a part of the market, namely large-cap industrials (eg. AGL, AMC, ANN, AZJ, BLD, BXB, CTX, CPU, IAG, RHC, SCG and other REITS, SHL, TCL, WES) and Financials (The major banks, CGF, IAG, QBE, the listed fund managers) that actually look quite reasonably valued.
So I see a significant number of stocks, that have large index weightings, being not at all expensive, and therefore I think that there is some sort of a safety buffer against major falls in the index.
But like I said, when it comes to stock prices, who can know what the near-term future holds?
The long-term future for index levels is different; that is quite forecast-able.
Which is why ignoring the short-term is the only way to invest in a market-derivative, such as IFL.
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