As I mentioned (American Depositary Receipt) ADR last time, I want to clarify further about ADR and other methods that people can buy overseas stock in US market.

Unless the stock is actually listed in US market, people actually trading the stock through some third party authority. In here I will mention ADR, (Over-The-Counter) OTC and Pink Sheet.

ADR:
From wikipedia, ADR means the ownership in the shares of a foreign company trading on US financial markets. To trade ADR, the most important thing to know is
1, which stock in which market is actually that ADR represent
2, how many share each ADR represent
3, what is the forex trend.
As long time ago I mentioned about Japanese stocks, take Honda as example, Honda stock code in Tokyo Stock Exchange is 3460, and in US is HMC, and each ADR represent each share in Tokyo Stock Exchange. When USD vs Yen was peak last year (about ~125), Honda worth 4,580Yen, and at trough this March, it was 2,610Yen. However, instead of bearing 44% of lost, its ADR is swinging between 36 and 28 (23%) because the exchange rate was 98 in March as well. Therefore, in case of weak USD, many ADR would have additional benefits because of this calculation. Of course, strong Yen also hurts Japanese export stocks, because it also means a lower income from US when they change it back to Yen.

OTC:
ADR requires a third party, normally bank, to buy the share from original market then trade in US. However, as not all companies are able to complete the reporting requirement, they will not trade through the big stock exchanges in US; instead they will go through OTC market. That sounds like smuggling stocks, however over-the-counter is an official and active market for stocks, bonds, commodities etc. and OTC means trade between seller and buyer without going through the stock exchange. The good thing is like in street market, you can find things that you cannot normally buy. However, the risk is there is no reporting requirement and the volume is normally not high, so you will not be able to know the real time bid and ask price.

Pink Sheet:
The price of OTC is actually recorded in OTC Bulletin Board, or Pink OTC Market. I specifically mention Pink Sheets, which means ADR in Pink OTC Market, because even at your risk, you can find the famous companies there, like Nintendo (8 ADR = 1 share), Gazprom, H&M. Even those companies do not meet reporting requirement in US stock exchange, it is not as risky as to think to buy those companies. One point I need to mention, OTC market as not under US stock exchange, there is no option available for the companies you find there.

It looks like a neat summary of ADR, and for more you can always check wikipedia. One thing I have to emphasize again is exchange rate. That's important for direct translation of your stock in ADR price, however it is more important if there is a steady and long appreciation for a currency, like Renminbi, the earning of its ADR will also take advantage and hence it will make a good discount of the PE. Even there are lots of Chinese companies listed in HK, that effect is not as dramatic as they are appearing in the US market. Maybe Renminbi appreciation is not in the mind of American, once there is earning report, they all seem so surprise.

cheers,
Eric