Citigroup downgraded European banking, financial services, chemicals, technology and industrial goods and services sectors to "underweight," saying companies will find it difficult to grow in 2009 with resilience in earnings and dividends likely to be rare.

The brokerage, however, upgraded the European media sector to "overweight" on valuation, and travel and leisure sector to "neutral" due to falling oil prices and food price inflation.

"(The year) 2008 has seen weak balance sheets punished by the market. We expect more of the same this year as recession combines with credit crunch," the brokerage said in its European equity strategy note.

The banking sector is likely to face a challenging 2009 given more expensive capital, lower growth and higher provision expense, while the financial services sector is likely to see lower trading volumes and fees with markets, Citigroup said.

"We expect earning momentum to deteriorate from here which pushes the sector (financial services) down our rankings," the brokerage said.

On the chemicals sector, Citigroup said it expects earnings momentum to turn negative through 2009 as the benefits from strong global growth and higher commodity prices have now disappeared.

The brokerage said it expected sectors with exposure to the automobiles sector continue to be affected and downgraded the industrial goods and services sector to "underweight."

Citigroup

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[C  Loading...      ()   ] also said the corporate sector is cutting capital expenditure, which does not bode well for the technology sector that is exposed to discretionary spending.

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