Aluminum Corp. of China Limited (ADR) (ACH)

ZachGruver (< 20) Submitted: 10/13/07 7:19 PM : Start Price: $42.50 ACH Score: -37.87

Alright, Aluminum Corporation of China (ACH) is known as an ADR (American Depository Receipt) meaning that it is also listed in other markets around the world, with the prominent listing not being the U.S. Market. It's main listing is indeed on the Hong Kong market. The conversion for the Hong Kong shares to the U.S. shares is as follows: (Hong Kong Price × 25 ( As there is 25 shares per U.S. ADR) × .12817 (Hong Kong dollar to U.S. dollar ratio). Basically what this means is that the U.S. and Hong Kong shares trade in equilibrium once all the conversions are done. Now, there is also an Aluminum Corporation of China listing on the Shanghai stock market (I will spare you this formula). Until about 4 weeks ago Chinese Mainland investors could only buy shares of Aluminum Corporation of China on the Shanghai stock market. On Aug. 20 there was an announcement by the Chinese Government saying that a pilot program would be launched allowing a select few Chinese Mainland investors to buy shares that are listed on the Hong Kong market. This would create only a small rise in Hong Kong shares normally, if there was not a small detail, that being a valuation that compares a company’s stock price to the company’s earnings (P/E ratio). On the Shanghai market Aluminum Corporation of China 's P/E ratio is 55, on the Hong Kong market it is 25. If China were to allow all Chinese Mainland investors to purchase shares on the Hong Kong market instead of just a select few, then the Hong Kong Shares and the Shanghai Shares would trade in equilibrium. This would make the P/E of the Hong Kong shares and Shanghai shares equal. And if this equilibrium P/E valuation ended up in the middle of the two previous P/E valuations it would mean that both shares would trade at a P/E ratio of around 40. This also means that the U.S. ADR would also trade at a P/E ratio of 40. Here's what this all comes down too: $38.4 (Hong Kong share price if P/E is 40) × 25 (25 Hong Kong shares per U.S. ADR) × .12817 (Hong Kong to U.S. dollar ratio). Price Per U.S. Share: $123.0432. I think that the speculation of China allowing all Chinese Mainland investors to purchase shares in companies like Aluminum Corporation of China will continue to drive the price of Aluminum Corporation of China up, therefore Aluminum Corporation of China will beat the market.

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