PartnerRe (PRE) reported its 1st quarter earnings on 29th April. The operating earnings per share of $3.39 beat market expectations of $2.36 by a healthy margin. The market reaction was not positive, with the share-price dropping 3.2% to $93 by May 1st close.

In this article I will look into some of the drivers for this, and explain why I do not follow the buy recommendations from analysts. Comparisons in this article will be Q1 2013 vs. Q1 2012 unless otherwise stated.

PartnerRe Ltd. is a leading global reinsurer, providing multi-line reinsurance to insurance companies. Risks reinsured include property, casualty, motor, agriculture, aviation/space, catastrophe, credit/surety, engineering, energy, marine, specialty property, specialty casualty, other lines, life/annuity and health, and alternative risk transfer solutions. Readers unfamiliar with the sector might find this explanation of the key risks and value drivers useful.

Operations performing well

Headlining the numbers was a strong

Last month, China wrapped up the inaugural session of the 12th National People's Congress (NPC). This marked the completion of China's leadership handover to the 5th generation of leaders of the People's Republic of China. As the Chinese economy holds the key to global economic growth prospects, investors should pay close attention to developments. Politics always play a critical role in economic direction, but in China, the leadership directly drives the economy with a strong political mandate. During the leadership transition, the economy has suffered from less emphatic policy-making, as the new leadership has been selected. Now this process is complete, more defined policies will follow.

In this article I will explore the implications of this "Great Rotation," outline some of the main players and their agenda, and suggest some stocks which stand to benefit from these policies as they play out over the next decade. The sectors and stocks

On January 23rd, Coach (COH) reported its 2nd quarter fiscal quarter earnings, with a modest 4% net sales increase suppressed by a 2% US same store reduction in sales. The reaction from a nervous market was marked - Coach shares dropped 15% to $50 in a single day. In my article, "Why Coach earnings will surprise to the upside next quarter" I suggested that the market reaction was over-stated. As a result of the changing seasonal sales profile, the January - March quarter will be progressively more significant to Coach. On April 23rd, the 3rd quarter earnings beat expectations, with a 7% increase in sales, and a 10% increase in earnings per share.

The share price bounced back, to close on the 24th at $56.3. In this article I will consider some of the factors at play, and look forward to the next quarter.

The business profile.

I explained in my baseline article on emerging markets that the scale bias embedded in funds such as iShares (EEM) can mean aggressive investors need to take a more specific approach to avoid missing out on growth. My first country article featured Thailand. In this article I shift focus to the largest South East Asian Economy - Indonesia.

Geography, History, and Demographics

Indonesia is a long archipelago stretching from just North of Australia to Indochina, which forms the backbone of South East Asia. Known in the 16th century as the "spice islands" the main Islands, Java and Sumatra were colonized by the Dutch. The dominant global trading company of the time, The Dutch East India Company, was founded on the exports of pepper and cloves to European markets. After the East India Company disbanded in 1800, the area was formally colonized as Dutch East Indies, and by 1900

Warren Buffett was in an upbeat mood in his annual letter to Berkshire Hathaway (BRK.A, BRK.B) shareholders, A 14.4% increase in book value in 2012 is not to be sniffed at, even if slightly overshadowed by the S&P 500 (SPY) 16% return including dividends. The BH insurance businesses took a prominent role in Mr. Buffett's analysis :

Our insurance operations shot the lights out last year. While giving Berkshire $73 billion of free money to invest, they also delivered a $1.6 billion underwriting gain, the tenth consecutive year of profitable underwriting. This is truly having your cake and eating it too.

This sounds too good to be true. When something falls into that category, it is usually worth a second look. Mr. Buffett obliges, by explaining the rationale for his assertion that insurance operations provide "free money."

Property-casualty ("P/C") insurers receive premiums upfront and pay claims later. In extreme

I recently wrote an article analyzing opportunities in Thailand, linked here, which was widely read, and generated a number of questions from readers. As mentioned in that article, I plan to develop a series of articles on emerging markets, however, have decided to close the loop on the Thai article, and address some of these questions first.

Exchange rate risk and tax

Firstly, at the fundamental level, what are the macro and tax risks in investing in Thai stocks? Thailand has a 10% withholding tax on dividends paid to overseas residents. There is a bilateral tax treaty between the U.S. and Thailand, the details of which are well explained on the IRS website. Any investor should, of course, seek professional tax advice specific to their own circumstances.

Exchange rate risk has to be actively managed. The Thai Baht has been appreciating against the greenback in recent years.

US Dollar

Property Casualty insurance and reinsurance (which I collectively refer to as (re)insurance) is an interesting sector for investors, in that performance can be highly diversifying within an equity portfolio. Valuations are currently low, with the sector trading at close to book value, and growth prospects are strong. However the sector is quite unique, and there is some complexity behind the business model that investors need to understand to make informed decisions.

Diversification stems from two areas:

Firstly, one of the key risks insurers run is that they insure large natural catastrophes, events that happen randomly and with little stock market correlation.

Secondly, insurers have large balance sheets with long-term policyholder liabilities, and they hold assets to balance their liabilities - often in bonds, a further diversification to an equity portfolio.

These two areas also reflect the two ways that insurers create value for their shareholders :

In a recent article, I demonstrated how investors in broad emerging market ETFs such as iShares' EEM could miss the growth potential of emerging markets.

This is because the MSCI EM index is biased to larger cap stocks and markets which have already seen their most active growth period. As an Asia-based investor, I travel frequently to the major markets, and hope that this enables me to generate some useful insights.

I am building a portfolio with a heavy emerging markets allocation for reasons explained here. I plan to look at individual emerging markets in a series of articles, and chose Thailand as the first case due to a reader query.

On my market selection model, Thailand earns an indicative overweight portfolio position, with several factors driving a positive outcome. These are that Thailand has a mid range GDP growth score coupled with low country debt and strong

Investors seeking to invest in growth economies via emerging markets ETFs such as iShares Emerging Markets (EEM) might be surprised when looking at what they are investing in. According to iShares, EEM seeks to give exposure to the emerging markets by tracking the constituent stocks underlying the MSCI Emerging Markets index. So far so good.

According to MSCI, the Emerging Markets index covers a range of stocks in 21 emerging markets, spread between Asia, EMEA, and Latin America. However, this does include significant weightings to several countries which are already quite far along the path of economic development, and do not offer outperforming future growth rates, and has no exposure to numerous markets approaching the highest economic growth phases. To compound this, because the index is market cap weighted, within those markets, the participation is skewed towards larger companies, which have generally already experienced their peak growth phase. I would

As the "Who's Who" of international business meets at the World Economic Forum in Davos, the WEF has published the eighth edition of its Global Risk Report. This report, produced in collaboration with a group of insurance companies and universities, provides a comprehensive and far reaching view of the global risk landscape, with the shared view of the risk industry and the academics.

The summary - the world of today is higher risk than 12 months ago.

The full report is available from the WEF website.

Investors can benefit from studying this work in two ways - understanding the risk landscape to make better 'risk on, risk off' decisions, and looking for opportunities that arise. One man's risk becomes another man's reward - which industries will benefit from increased demand in the longer term?

The key risks are mapped on a consistent basis, generating a dynamic picture of the

Coach (COH) reported its December quarter earnings last week and the market reacted with a 15% price drop, making Coach the worst performer on a day which saw the S&P 500 index moving steadily higher. Even though at Coach net sales and earnings grew 4% year on year, the market expected more, and focused on the US where same store sales fell 2% year on year.

This extreme market reaction to earnings misses, which we saw also with Apple (AAPL) last week seems to be the result of the current high valuations of the market, where growth estimates must be met to justify the high PE multiples.

Coach is now trading at a ttm PE of around 14, no bargain by anyone's standards, but under the the market and sector average. I believe that the market reaction is overdone and Coach is a buy at this level, as growth in

Investors tend to focus heavily on their home country when allocating their assets, as this has several advantageous factors in terms of familiarity with the markets, comfort with the legal and financial environment, and association with future liabilities, such as retirement cost for individual investors, and labour, and management costs, or dividend and distribution expectations for institutional investors such as pension funds.

A cautious approach is recommended by the Association of American Individual Investors, who's most aggressive portfolio allocation has 60% in U.S. stocks, 20% in non-U.S. stocks, and 10% in Emerging market stocks, while the moderate risk and conservative risk profiles have almost no emerging market exposures. The AAII website has 3 risk profiles in their allocation section.

This however, does potentially forgo some significant opportunity for returns, and does run the risk of over-correlation of the portfolio, when compared with investing more actively in overseas markets. There

In a recent article, "Tempted by S&P 1600 but wary of a sharp correction" I commented on the seeming convergence of performance of previously diversifying asset classes such as stocks represented by SPY, and precious metals in the form of SLV and GLD, and how this, compounded with the negative real returns available from cash and US bonds (TLT) creates challenges for the effectiveness of asset allocations strategies to manage the downside risk of stocks as we enter a 5th year of price uptrend despite well-documented macroeconomic headwinds.

Identifying the need to explore alternative strategies, I presented the results of a back-testing simulation of a series of 12 month at the money put options to hedge a portion of the downside risk within the cost range of the expected dividend yield. The results indicated that the market is pretty efficient at pricing for the observed volatility, and that this strategy

SodaStream (SODA) is a relatively new brand, with a new and innovative product that threatens a market disruption for the giant incumbents of Coke (KO) and Pepsi (PEP)... right?

Well, the market disruption threat is certainly there, and much hyped by the supporters of the stock. SodaStream - the product and the technology are not so new. Growing up in England in the 1970's and 1980's, I first became aware of SodaStream. The product, a concoction of syrupy flavor carbonated at home was close to the real thing, but not close enough. The company passed from hand to hand with injections of cash and marketing, but from my recollection never seemed to develop more than a fad status.

I didn't hear of SodaStream for many years, until the 2010 Nasdaq listing. Where had it been all these years?

The company's explanation:

1903 - founded as part of W&A Gilbey, a

Which way to jump?

Recent analyst predictions for the S&P500 (SPY) in the coming year seem to be centered around the 1500-1600 range, with a clear consensus that the issues around the fiscal cliff will be put behind us, and investors will return to the market to capture the upside of an economy bolstered by QE liquidity injections and trading into a recovering global environment. Balancing this we see significant downside risk, equities relatively expensive in historical and global perspectives, and a fourth year of market gains supported by increasing margin debt. A faltering of the economic recovery could result in a rush to the exits, and a 20 - 30% drop which would wind the clock back to 2010. Many ask the question whether to sit on the sidelines until the fundamental outlook is more secure, or jump in boots and all.

Asset allocation

To many the answer is