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Australia's Stock Market Is Decoupling From the World

Changing fortunes for interest rates playing out in bank shares

It all started so well for Australian stocks this year, as they rallied to touch the highest since May 2015.

That euphoria has ended abruptly as banks dragged down the country's main index, making it the worst-performing major Asian stock gauge. The nation's biggest lenders are getting hit as concern grows that their share prices rose too far, too fast given uncertainty around changes to regulation in a low-growth cycle.

For a market that's historically the most tightly correlated in Asia with the MSCI World Index of developed-market shares, a key difference is emerging in the outlook for banks. That's breaking down those lockstep moves.