Lack of volatility and narrow spreads have driven investors to seek out yield in the structured credit market. New products built on transparent, non-proprietary credit derivative indices have fed this demand but participants worry that not all investors have a clear idea of what they are getting into.

The mini bank crisis Russians faced in the summer has underscored the urgent need for bank sector reform and the creation of a system that can respond to the credit needs of businesses and individuals.

Germany breached the EU's budget deficit limit of 3% of GDP over the first six months of this year and will almost certainly break the terms of the European stability pact that underpins the euro for the third year in a row. In fact, the government managed to run a 4% budget deficit over the first half of this year, slightly higher than the 3.9% for the end of 2003, federal statistics office Destatis revealed last month.

Russia's economy is roaring up the growth curve but dependence on oil revenues, insufficient diversification into other activities and a growing gap between the well-off and the poor give cause for concern.

By Camilla Palladino

Investors ask tough questions these days about companies' ability to honour their commitments. After all, no-one wants to fall victim to the next corporate scandal. But Toys “R” Us shareholders and bondholders are safe, aren't they? Surely official “spokesanimal” Geoffrey the Giraffe and chums won't let them down.

There's an obvious appeal in linking your brand with the Olympic ethos of excellence and achievement, as the likes of John Hancock, Visa and Greece's own Alpha Bank did at last month's Athens Games. Other sponsorships are harder to work out. Standard Bank of South Africa, for example, is sponsoring a dead whale. Misty is, or was, a southern right whale (Eubalaena australis) that came off second best in a collision with a ship and washed up near Cape Town. As Standard Bank says in a grisly press release: ?Decomposition set in and her rotting 70-ton body became a source of controversy. It was decided to implode the carcass but [residents] persuaded the powers to allow them to remove the rotting flesh to preserve the skeleton.

Senior bankers who quit their jobs on the pretext of pursuing new interests often quickly emerge in a similar role. Not so Manfred Schepers, who left UBS last June after 17 years. He said he was leaving to consider new banking roles but that his first priority was a good break. He meant it.

South Africa has built stable macroeconomic foundations since the overthrow of apartheid but its potential as a regional leader is still hampered by corporate rigidities, untapped talent reflected in high unemployment, an Aids epidemic and a failure to attract inward investment.

MBNA Europe's delinked programme should help Europe's ABS issuers to respond to investor demand

German savings banks are using credit default swaps to reduce their credit risk concentration for the first time.

No-one disputes that China's growth rate needed reining in. While investors worry over the possible consequences of a sharp slowdown, most economists believe that, contrary to global historical precedent, the Chinese authorities might have pulled off the trick of a relatively painless cool-down. But serious structural flaws in the economy remain and make China a perilous place to invest.

Having been heavily overweight on Russia last year, many emerging-market equity investors are now scaling back their positions. Some investors are making a fundamental reassessment of Russian equity risk.

Nordea has become the first bank anywhere to completely outsource its company equity research. It is unlikely to be the last. The pan-Nordic bank is to cease its own coverage of stocks in the Nordic region and will instead buy research on 200 regional stocks, including buy, sell and hold recommendations, from Standard & Poor's. This follows a similar deal with S&P last year in which Nordea outsourced all its US, European and Asian company equity research coverage to the US group.

New approaches to instilling high standards have fed into this year's Euromoney corporate governance survey. Initiatives include activist fund managers taking on mandates to advise other investment groups and the incorporation of governance criteria into bond ratings.

In the lull between the fundamentals of European companies improving and their expanding or acquiring rivals, there's been a dearth of new credit issuance. Hence the interest investors have taken in liability management deals. Investors claim to see good returns from these, but this is by no means guaranteed.

Banks in Arab countries enjoyed much better results in 2003, especially during the second half. In 2002 earnings fell on the back of weakness in global investment markets, tight margins, and higher provisions. Net profit bounced back in 2003, rising by over 15% for the top 100 Arab banks.

Country risk index: The latest Euromoney country risk survey, which for the first time incorporates data on perceptions of corruption, reflects continuing upheaval in the Middle East and Africa that is only partly compensated for by a favourable global trade environment.

Bulgaria cleared an important hurdle when it finally approved the sale of mobile phone company BTC to a consortium led by Advent International in February, in one of the region's largest leveraged buy-outs. Financing for the deal finally closed in June. Gyuri Karady of Baring Private Equity Partners says: ?It tested the legal framework in Bulgaria, and it looks like the rule of law prevailed, which is a triumph for Bulgaria.? Progress on the deal was one of the factors that helped the country obtain an investment-grade rating later in the year.

Deflation is on the way, summoning up a long and dreary financial winter. But it should be preceded by a burst of autumn sunshine

Citigroup's trading on European government bond platform MTS on August 2 has provoked a lot of hyperbole. Citigroup sold e11 billion of European government bonds on MTS and bought e4 billion back a few minutes later at a lower price, making a profit and causing losses at other primary dealers. According to one financial newspaper, Citigroup has "systematically targeted other market makers' mandatory price quotes", which has "shocked rivals". Consequently, the eurozone government bond market has been "thrown into turmoil" and apparently national debt agencies have been forced into a period of "intense soul searching".

Low interest rates and improvements in financial stability and management in large parts of Latin America are putting banks on the path to increased lending capacity as demand for credit increases.

A slowdown in the growth of China's asset pool is not deterring new entrants among fund managers.

To date, securitization in eastern Europe has been a very occasional affair. Turkey has seen a few future-flow transactions, Hungary has a relatively developed domestic mortgage bond market, but you can count the number of other transactions on the fingers of two hands. However, the market should pick up this year.

The prospect of next month's European Commission decision on EU membership for Romania has concentrated the minds of the country's politicians and bankers. A flurry of reforms have been accompanied by an acceleration of privatization to get the country into shape for a 2007 accession target.

When it comes to picking stocks and beating the market, women are better, says DigitalLook.com. In a study of 100,000 portfolios from July 2003 to July 2004, the company found the average woman's portfolio grew 10%, beating the FTSE All-Share by 3% and the average man's portfolio by 4%.

European and US equity markets have mirrored each other for years but macro trends could force a decoupling over the next two years. ABN Amro strategists see several factors paving the way for this. The first is that productivity growth in the US and Europe has passed an inflection point. The US has experienced two years of strong productivity growth, but the rate is unlikely to be sustainable. European productivity still has room for improvement.

There has been an unseasonal tension on some of Spain's more exclusive beaches over the past month. August is usually a time for the great and the good of industry to leave the stresses of the cities behind them and unwind by the sea. But for the chairmen of some of the biggest companies, the holidays were spoiled by the knowledge that in the autumn they will be fighting for their jobs.

The youthful managers of Kazakhstan's financial sector are determined that oil and minerals wealth will be used to create a strong mixed economy. A well-regulated banking system and controls on the inflationary effects of oil earnings have been established but diversification and financial markets development still face significant hurdles.

The appointment of former deputy central bank governor Jammaz Al-Suhaimi as chairman of Saudi Arabia's Capital Markets Authority looks set to accelerate the liberalization and broadening of the kingdom's financial markets.