Emerging market stock of the day: Chalco

The Aluminum Corp. of China ( ACH , quote ), better known as Chalco, dropped in Tuesday trading after the company announced on Monday that the state-owned firmwould drop its bid for Mongolian SouthGobi Resources after months of contentious negotiations.

Chalco, China's largest producer of aluminum, had previously bid $962 million for SouthGobi, a Hong Kong-listed Mongolian miner earlier this year. However, the company's bid resulted in significant backlash from the Mongolian peoples, wary of what they perceive to be a form of neo-imperialism. 

Concerns also persist in Mongolia that not enough of the recent boon from commodities is being kept in domestic hands, and that the traditional Mongolian way of life may be corrupted by the country's pivot towards a resource-based economy.

Whether these concerns outweigh the economic good of developing these resources has been rendered moot, as politicians took up the cause. Mongolia's government quickly passed laws preventing majority foreign ownership in the country's mines.

As a result of this legislation and concerns over the Chalco bid, the Mongolian government opted to suspend SouthGobi's operating license, rendering its mine in Oyu Tolgoi inoperable since the end of June.

Because of this substantial internal pressure within Mongolia, Chalco was all but forced to drop its bid, as seeing it to fruition was all but impossible after the legislation passed.

However, the inability to conclude this deal may not be terrible for Chalco. Rumors persist that Mongolian mines may be overvalued .

With that in mind, it might still be too early to go long Chalco here. Aluminum prices remain soft, and with China's housing sector still struggling, Chalco in particular could see further downside before there is any real upside potential. As well, the stock's consistent negative earnings per share is enough to give emerging markets investors pause. Until aluminum prices start to look better, it's hard to make a bullish case to go long Chalco , even at a 52-week low.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

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