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Norway Hikes Rate for First Time in 7 Years: ETFs in Focus

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It seems that developed countries are also coming forward to hike rates gradually. While the rate hikes have been rampant in the United States over the past few quarters, things are seemingly shaping up in the same way across the pond.

The Norges Bank raised its key policy rate to 0.75% from 0.5% on Sep 20. It was the first rise in borrowing costs since 2011, as inflation accelerates and economic growth picked up. The bank raised its reserve rate by 25bps to -0.25% on the day. However, the bank noted that it would opt for slower rate hikes in the coming years and mentioned that it is watching out for risks from abroad,including trade war tensions.

The chances of policy tightening are getting stronger in Europe. Sweden’s Riksbank plans to begin raising rates in December or February, while the European Central Bank (ECB) intends to close bond purchases this year and is on the way to hike rates next autumn, per Reuters.

Why the Rate Hike?

Norway is among the top 10 nations famous for oil exports and with its comparatively low population, oil forms a key part of the country’s GDP. Per the U.S. Energy Information Administration (EIA), Norway is the biggest oil driller in Europe. So, a sharp spike in oil prices in the past year bodes well for the Norwegian economy. United States Brent Oil BNO has gained about 46.5% in the past year (as of Sep 20, 2018) (read: 4 Country ETFs That Should be Beneficiaries of $70 Oil).

The Norwegian economy grew 0.4% sequentially in the second quarter of 2018, following a 0.2% expansion in the previous period. The country’s consumer price inflation rose to 3.4% year over year in August 2018 from 3% in the previous month and above the market consensus of 3.2%. It marked the highest rate since December 2016, per trading economics. All these upbeat data points gave the central bank a leeway to hike rates.

Market Impact

Norway’s crown currency, which had gained strength about 3% against the euro in recent weeks as investors braced for tighter policy, lost 1% as the central bank indicated a slower rate hike trail ahead.Norway ETFGlobal X MSCI Norway ETF NORW added about 0.5% on Sep 20. Against this backdrop, investors can take a look at Norway ETFs.

NORW in Focus

This fund invests in among the largest and most liquid Norwegian securities, which are benefiting from higher oil prices and the country’s low level of political risk. NORW follows the MSCI Norway IMI 25/50 Index and holds 61 stocks in its basket with heavy concentration on top three firms, which collectively account for 40% of the assets. Equinor Asa (18.63%), DNB Asa (12.11%) and Telenor Asa (8.64%) are the top three stocks.

The fund invests 65.66% of its assets in the top-10 holdings. It has amassed $174.0 million in its asset base and charges 50 bps in annual fees. Energy is the top sector at 34%, closely followed by financials (22%). The product is up 12.2% and has a Zacks ETF Rank #3 with a Medium risk outlook.

iShares MSCI Norway ETF (ENOR - Free Report)

The underlying MSCI Norway IMI 25/50 Index is designed to measure broad-based equity market performance in Norway. The 61-stock fund puts 33% weight in the energy sector (33%), while financials (22.50%) and consumer staples (15.92%) round out the next two. Here also, Equinor (18.73%), Dnb (12.09%) and Telenor (8.84%) are the top three holdings. The fund was up about 0.7% on Sep 20.

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