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OSLO -- With its arctic weather conditions and high taxes, Norway may not have much in common with emerging markets like China, India and Brazil. But this Scandinavian nation of just 4.5 million has been one of the prime beneficiaries of their growth.

Furthermore, as Norway's central bank looks to raise rates again on Wednesday, many are now seeing the Norwegian kroner as the new destination for the yen carry trade, i.e., the popular practice of borrowing Japan's currency to reinvest in higher yield assets.

The kroner is "about to turn into the long side of the yen carry trade," says David Karsboel, a currency strategist at Saxo Bank in Copenhagen. "The 800-pound gorilla here is China: If the country stays at this breathtaking level of growth, then that means a high oil price and hence a high Norwegian kroner. The Norwegian kroner is getting more and more interesting."

(China shows little signs of slowing: After a nearly 5% dip last week, the Shanghai Composite Index was up 3.53% overnight, back at another all-time high of 3,710.89. Meanwhile, the

iShares FTSE/Xinhua China 25

(FXI) - Get Free Report

rebounded from the fallout to rally sharply late last week, although it was down 1.1% in recent trading Monday.)

Norway is the world's third-largest exporter of oil. Meanwhile, consistently high interest rates have made the kroner the third-best performing currency of the 17 major world currencies in the last 12 months, behind Brazil's real and the Australian dollar, according to


. Norway's currency has surged 11.9% in the past year, from nearly 6.5 against the dollar to 5.97.

Norges Bank -- the country's central bank -- has raised interest rates 10 times consecutively to 4% since March 2004, and is expected to raise rates again on Wednesday. If this happens, cheap money from Japan will continue to bolster Norwegian assets but may also put upward pressure on oil prices as the kroner continues to rise against the dollar.

Investors in Norway's domestic equity markets have seen the gains as economic growth has surged. In the past year, the Oslo Bors, Norway's main exchange, has gone up by 41.5% as the oil-heavy market has benefited from strong demand for the commodity from the growing emerging economies. On Monday, the market was up 2.83% to a second all-time high for the year of 475.43 on the back of bullish momentum from Wall Street's gains last week and continued strong oil prices.

"The Norwegian economy is entering its fourth consecutive year of above-trend growth, while wage and price inflation have been remarkably subdued," concludes the International Monetary Fund's recent report on the country. The IMF says the country's growth is due to high world prices for petroleum products and other Norwegian exports, like wood and fish; labor inflows from new EU member countries, such as Poland; and increased productivity in domestic sectors like technology.

Earlier this year, the technology sector saw a flood of

merger mania as Tandberg Television, one of Norway's fastest-growing technology companies, was first bid for by

Arris Group

(ARRS) - Get Free Report

and then later snatched up by


(ERIC) - Get Free Report

in a surprise last-minute offer.

And late last year, the country was home to one of the largest energy deals of the year when




Norsk Hydro

( NHY)

in a deal worth $97.15 billion.

Norsk Hydro ADRs are up 12.72% on the year, while ADRs in the newly merged Statoil have risen 6.69%. And in the same period, other Norwegian ADRs such as

Petroleum Geo Services

( PGS) have performed similarly well.

But Norway's market has felt the volatility of emerging market growth too. After the short-lived plunge on the Shanghai Composite Index in February, the Oslo Bors fell by 8.6% over the following week -- only 20 basis points shy of the plunge in China's index at the same time -- and weakening the currency 2.5%. Still, since then the market has grown by 10% and the currency is at its strongest level in five years.

"Our outlook for the Norwegian economy is strong," says Karsboel. He also says that down the line, if Norway begins to cut rates, this may begin to unwind some of the carry trade and may be a signal that growth is slowing generally. "If we see Norway cut rates, we'll see this all over the place," he says. "It's an important oil-led, export-led economy."

Daniel M. Harrison is a business journalist specialising in European and emerging markets, in particular Asia. He has an MBA from BI, Norway and a blog at

. He lives in New York.