Sharemarkets around the world are forging to pre-GFC heights in the wake of good news out of America: Job figures in the U.S. have returned to 2008 levels, it seems the Obama Administration is making workable plans to rein in the U.S. debt and avoid a fiscal collapse, and Wall Street is attracting a flood of investment from European speculators.

SharemarketAnd it’s here things get interesting. One of the reasons Wall Street is flourishing is because of the negative interest rate being charged by the European Central Bank. In effect, a negative interest rate charges depositors to leave their money with the ECM. This is designed to encourage these investors (usually banks and big businesses) to chase higher interest rates in overseas markets.

The question then becomes – why hasn’t the Australian sharemarket attracted its quota of investors? Our current interest rate is certainly one of the best on the global market. On top of that the RBA appears to have a very firm grip over the state of the economy. And yet over the last week the Australian sharemarket declined. In fact, it is still 20% below its pre-GFC levels.

Economists point to the fact that the Australian economy benefits most from export. Most of that export coming from mining (significantly iron ore). Now while iron ore production has increased, global prices for the product have crashed. Therefore major players like Rio Tinto, BHP Billiton, and Fortesque have dragged down the Australian sharemarket and discourage overseas investors.

The wildcard in the pack is China.

Maintaining a 7% growth rate in China means continued high demand for Australian exports. This will buoy up non-mining sectors of the economy and go some way towards mitigating the fallout from slashed iron ore prices.

Rising exports, it is hoped, will improve the sharemarket and attract European investors.

Watch this space.

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