Spotlight Will Remain Trained on Telecoms

Also, banks and financial stocks should remain interesting.
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Deutsche Telekom

(DT) - Get Report

and

Telecom Italia

(TI)

have certainly got things all riled up.

Following the blockbuster merger deal announced by the two former monopolies last week, European investors are waiting for the next shoe to fall. Speculation is mounting that the deal, which will create one of the world's largest telecommunications companies, will herald a new wave of consolidation within the sector. Although considerable obstacles to the deal remain, all of the merger hubbub is increasing interest in the shares of takeover targets as well as their potential predators.

Let's look at the players: Rumblings are already coming from the new Deutsche Telekom-Telecom Italia behemoth that it may not be content with its own "merger of equals" and could already be warming up to buying other operations. As on

discussed by

TSC

on Tuesday,

Sprint

(FON)

remains one possibility.

France Telecom

(FTE)

, feeling rather snubbed by Deutsche Telekom, has said its alliance with Deutsche Telekom is incompatible with a Telecom Italia linkup. So it may well begin to actively seek another partner.

The latest talk was that that partner could be none other than the U.K.'s

Cable & Wireless

(CWP)

, which helped push the firm's stock in London up 3.27% on Friday. Also on Friday,

TSC

examined Cable & Wireless' travails in Japan.

The coming week will also most certainly see speculation grow that Spain's

Telefonica de Espana

(TEF) - Get Report

will soon fall to a larger European or overseas company. Telefonica has been seen as a target for a while, but in the wake of the DT-TI deal, many European investors believe the telcom may be snapped up sooner rather than later.

"There's a good chance that something else in the telecoms sector could happen next week," says Claus Martini, a fund manager for DWS Funds in Frankfurt. "It should definitely keep the markets cooking."

Though European investors are still leery of events in Kosovo, some say that as long as things don't escalate, the conflict should not keep equity markets across the Continent from rising.

"The week was positive, so we have a little profit taking on Friday. But there's no reason we shouldn't go higher next week," Martini says.

Martini also says banks and financial stocks, as well as technology issues, should remain interesting in the coming week, but in Germany two transportation heavyweights will also claim some of the spotlight.

On Wednesday,

DaimlerChrysler

(DCX)

is set to report first-quarter results for the first time as merged company, and analysts expect to see some clear benefit from the union. On Thursday,

Lufthansa

is set to provide further details of the airline's 1998 results.

So while positive momentum could come from a few different directions next week, it's the telecom sector that could really get investors calling their brokers.