Follow the Nordic Stars

08/16/2010 1:00 pm EST

Focus: ETFS

Nicholas Vardy

Editor, Bull Market Alert, The Alpha Investor Letter, and The Global Guru

Nicholas Vardy, editor of Global Stock Investor, says the four Nordic countries—Sweden, Norway, Finland, and Denmark—should continue to outpace the developed world.

Global X FTSE Nordic 30 ETF (NYSEArca: GXF) focuses on Europe’s Nordic region.
Consisting of Sweden, Norway, Finland, and Denmark, this periphery of Europe is often overlooked by even mainstream European investors.

Impressively, the Nordic economies have proved their mettle during the “Great Recession,” bouncing back faster than any other developed economies in the world. Both Norway and Sweden are growing so quickly that their central banks already are hiking rates to cool things off.

Sweden, Norway and, to a lesser extent, Denmark, have reaffirmed their reputation as relative safe havens amid the economic uncertainty that still haunts much of Europe. The World Economic Forum (WEF) ranks Sweden, Denmark, and Finland among the top ten most competitive economies in the world.

The Nordic economies’ only sin is that they are small. Taken together, they make up only 24 million people—about two-thirds the size of California. Yet, with a combined gross domestic product (GDP) of more than $1.5 trillion, they punch far above their demographic weight.

The Nordics work hard to remain distinct from the rest of Europe. Norwegians have voted down European Union (EU) membership, and the Danes have rejected the euro.

With a population of only 4.6 million, tiny Norway—the world’s third-biggest oil exporter after Saudi Arabia and Russia—combines aspects of a developed country with an emerging market-type, commodity-based economy.

Norway’s budget surplus last year was 11% of its [gross domestic product]. Norway has the second-highest GDP per capita, next to Luxembourg, at $52,000 per person. The unemployment rate stood at 3.5% in March this year—the lowest among Organisation for Economic Co-Operation and Development (OECD) countries.

Sweden’s economy is getting back its mojo after 2009’s 5.1% slump—the worst contraction in 70 years. The central bank has just revised upward its economic growth forecast for 2010 to 3.8%.

Back in 2006, Swedes elected a center-right government led by Fredrik Reinfeldt, who promised to shake up the “Nordic model” with a series of market-friendly reforms. These included selling off state-owned stakes in Swedish companies, tackling high unemployment by getting people off benefits, and cutting taxes for companies so that they [could] afford to hire more people.

Until Reinfeldt’s reforms, Sweden offered recipients of disability benefits pay that is equal to 80% of their previous salary, up to a maximum of 25,183 Swedish kronor, or $3,550 a month.

Within a year of coming into power, the government lowered income taxes by 2% of GDP. The government’s reforms to sick benefits got Swedes back to work.

The best way to play the Nordic story is through Global X FTSE Nordic ETF, which tracks the FTSE Nordic 30 Index.

As of March 31st, Swedish companies make up a big part of GXF at 43%, followed by Denmark at 20% and Finland and Norway, both at 18%. Financial services and telecommunications together make up close to half the ETF, with the largest holding Denmark’s Novo Nordisk (NYSE: NVO).

So, buy GXF at market today, and place your stop at $14.50. (It closed above $16.50 Friday—Editor.)

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