Stock markets around the world have gone up and down over the years. One thing has, until recently always, remained true: That after a fall the market has always worked its way back to previous crash heights.

But this hasn’t happened in Australia.

The Wall Street share market has recovered (and then some) from its  50% fall in 2008. Tokyo has surpassed its level just prior to the GFC (but is still barely a third of its 1980 value). Europe, the U.S. and Britain have all bounced back to levels preceding the meltdown. Why then hasn’t Australia done the same?

PendulumEconomists are now pointing to a pendulum effect: Interest rates were cut the most by those countries hardest hit by the GFC. The U.S. and various European nations cut theirs, in some cases, to almost zero. This incentivises investors to remove their assets from safer, lower-performing bank deposits and invest in riskier, higher returning share market portfolios. And some of those portfolios will succeed, and therefore drive the overall stock market price higher.

It has been widely acknowledge Australia missed, by a long way, the worst of the GFC. Our banking laws were tighter than those overseas. With the exception of NAB most of our big four banks avoided large exposure to the banking disaster. At its worst, the Australian Reserve Bank cut interest rates to 2.5%. And while this may have prompted many to switch from bank-backed securities to shares; it didn’t have the same effect as dropping interest rates to zero and virtually forcing them into it.

On top of this is the make-up of our big share market players: The top ten stocks on the Australian share market make up a much larger proportion of the overall market than in other countries. Also these big players belong to a smaller market segment – The big four banks, two resources giants (Rio Tinto and BHP Billiton), and two supermarket chains (Woolies and Coles). What this means is that without gains in these three sectors our share market will remain docile – regardless of how the rest of the economy is doing.

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