Billabong International (BBG:ASX) A$12.90

Slowing consumer spending is not only a problem affecting the US and UK. The woes this side of the world are mirrored in Australia, where the Reserve Bank of Australia has to balance high inflation and a stagnating economy. Warren Firth, investment advisory consultant at IG Index, points out that the Australian monetary policy maker has recently raised official interest rates to fight inflation, in spite of the global liquidity crisis, and that this will create ‘disinflationary and recessionary pressures’. Another natural outcome will be lower profits for consumer-exposed companies such as Billabong International, one of the largest brands in the global board-sports market. Billabong sells in more than 100 countries and is one of the leading shares on the Australian Stock Exchange. Higher interest rates, reckons Firth, will lead directly to lower sales at Billabong, and this is a valid reason to short the company’s shares, as the higher cost of borrowing puts pressure on spending on goods such as Billabong’s.

ACTION: SELL Billabong Int. • Target A$11.60 • Stop loss $13.50

TIME TARGET: 5 WEEKS