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European securitization in 2004 is set to exceed the issuance record set last year, according to a report from the European Securitization Forum.

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.

New tools such as credit default swaps and index products have changed the ground rules of hedge fund activity in emerging markets. They are paying off now but will sophisticated pricing and technology be able to cope with the next emerging-market debt crisis?

On July 4 the Russian cabinet approved a new banking strategy to cover the development of the sector over the next four to five years.

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.

CEE private equity, after a tough period that saw many funds go out of business, is enjoying a surge in activity, thanks to access to leveraged finance. Some funds are making big returns. Others, however, are still struggling.

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

No matter how successful the Argentine exchange offer is, there will always be holdouts ? investors that refuse to enter into the exchange in the hope of getting a better deal later. Many investors are worried about these holders of original debt. Will they pose a credible threat of seizing coupon payments on Argentina's new bonds? If they do, they could keep Argentina in financial purgatory, without access to investment, and with artificially high bond spreads because of the risk of coupon attachment, even though a supermajority of creditors had agreed to a restructuring. Reassuringly, the answer is that the holdout threat is probably not all that credible, although nobody knows for sure.

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.

Does present poor hedge fund performance cast doubt on the broad validity of the sector or have new investors that flooded into hedge funds recently fallen for myths about their success and failed to see performance in a historical context? What is clear is that attempts to match capacity to demand have at least temporarily undermined some hedge fund strategies.