Feeling Gravity's Pull
Might the rest of Europe eventually drag Scandinavian economies down with them? "They're not totally de-coupled from Europe, but they are much less volatile, being outside the currency union," says Ashby, adding that Scandinavian countries have "policies that impact each other and are self-reinforcing, with a lot of integration of trade and partnerships." To be sure, the Scandinavian countries have seen their currencies strengthen against the euro, which is creating a moderate headwind for some exporters.
Germany has surely seen benefits for the weakening euro. The country is an impressive global exporter-especially to emerging markets. In fact, half of all European exports to China come from Germany. Might a more stable European economy lead the euro to rebound in value? Marc Chandler, the global head of currency strategy at Brown Brothers, figures the euro was overvalued before and is now right around fair value.
Of course, there are always fears that Greece would leave the euro, impacting the currency. Chandler thinks the odds of Greece leaving the euro are quite low, but if that happened he thinks the euro would weaken further on fears that Portugal or others would also consider an exit from the euro.
With expectations that the euro is unlikely to strengthen, German exporters should maintain their dominant role. Meanwhile, the Scandinavian countries' relative insulation from Southern Europe should also help those economies to grow at a moderate pace. Against such a backdrop, these country and region-focused ETFs look poised to perform well in coming years.
David Sterman has worked as an investment analyst for nearly two decades. He was a senior analyst covering European banks at Smith Barney and was research director for Jesup & Lamont Securities. He also served as managing editor at TheStreet.com and research director at Individual Investor magazine.