The Sweden country-specific exchange traded fund could be picking up speed as the Swedish economy is growing faster than previously expected.
The iShares MSCI Sweden ETF (NYSEArca: EWD) was up 1.2% Friday and rose 8.3% year-to-date, outperforming the broader Vanguard FTSE Europe ETF (NYSEArca: VGK), which gained 6.5% so far this year.
Swedish markets were strengthening after the government revealed gross domestic product expanded 1.1% over the fourth quarter, or twice the 0.5% estimated growth rate, Bloomberg reports.
“On the one hand, the Swedish economy is strengthening, and on the other hand the krona is strengthening, which pushes down inflation pressure in Sweden,” Magnus Alvesson, head of economic research at Swedbank AB, said in the article.
However, the strengthening economy bolstered the Swedish krona, which appreciated as much as 1% against the euro and 1.2% versus the U.S. dollar.
Some of Sweden’s larger companies are struggling due to weak demand from Europe, the country’s largest export market, as the krona currency appreciated against the euro. However, lower central bank rates has helped stimulate household spending.
The Swedish central bank recently cut its benchmark rate below zero for the first time and started buying bonds to combat deflationary pressures. However, if the krona continues to strengthen, the Riksbank could be forced to implement more aggressive measures. [Denmark ETF: Central Bank Loves Rate Cuts]
“The Riksbank will be happy” with the GDP report, “but they may not be as happy with the strengthening of the currency,” James Pomeroy, an economist at HSBC Plc, said in the article. “Their target is inflation and if the currency is to strengthen significantly then that makes hitting the inflation target less likely; they might be forced into more action despite the growth numbers.”
The central bank expects the economy to expand 2.7% this year and 3.3% in 2016. Meanwhile, consumer prices could only inch up 0.1% in 2015, well below the central banks 2% target.
iShares MSCI Sweden ETF
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Max Chen contributed to this article.