The Swedish krona soared to a 12-year high against the euro this week, as investors traded on its well-established sensitivity to global equity market performance. But what are its long-term prospects?

Buying the krona has conventionally been seen as a useful proxy for buying international, export-focused stocks because of the international exposure of the companies that dominate the country’s stock market. Ericcson, the telecoms equipment manufacturer, makes only about 3 percent of its revenue in Sweden. Electrolux, the domestic appliance maker, relies on foreign sales for all but 2 percent.

Because of Swedish companies’ international focus the krona has tended in the recent past to correlate particularly well with the U.S. S&P 500 stock index. True to form, the S&P and the Swedish currency have risen in tandem in the past few weeks on growing optimism about the U.S. economy, combined with hopes of renewed European Central Bank activism to allay the euro zone crisis. The S&P was up 7 percent since the beginning of June at 1,401 when European trading closed on Thursday. Over the same period the krona was 8 percent higher against both the greenback and the European single currency, with rates at the European close of 6.7 krona to the dollar and 8.2 to the euro.....

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