Investor sentiment
The symbol is clear, new companies will enter in the Dow Jones Global Titan index on June 24th and among the companies pushed out of the Titan index are Deutsche Telekom, Worldcom and BT. The tech stocks are less in favour these days. During 2001 investors and analysts were expecting a durable rebound of TMT and betting on the fact those stocks were so cheap that an upside was inevitable. But it seems
that since the beginning of the year professionals don't trust this area of investment anymore.
Due to the global economic situation and the lack of advertising investment, the media sector doesn't offer any bright perspectives either. The software and component industry can't expect strong growth, but the worst situation is probably found in the telecom sector. The recent bankruptcy of KPNQwest shows that even operators with a strong customer basis can collapse. Considering that "stocks do seem to be getting attractive again on an earnings yield gap basis" Tobias Levkovich, analyst with Salomon Smith Barney, thinks, "the IT sector may be able to generate a bounce as well". The problem is that "many valuations lack any coherence, even on a relative basis" according to a survey about telecom industry conducted by WestLB Panmure Bank.
Considering the very large stocks of debt, telecom operators are probably not the best vehicles to invest. And mobile operators have no reason to hope either. According to Merrill Lynch, the worldwide mobile market is going to reduce by 6% in 2002 and by 11% in 2003. One of the consequences is that equipment manufacturers like Alcatel, Lucent, Cisco are going to suffer as well.
Outlook
Except for operators with a strong financial structure like Vodafone or those which could be bought like mmO2, it doesn't seem there are serious reasons to take risks in the telecom sector in short term. Investors with a long-term strategy can try to bet on players with a certain visibility like Orange or Telefonica.
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