SINA Shares Plunged: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: SINA (NAS: SINA) saw its shares tumble 13% in a matter of minutes on heavy volume today, before recovering to a modest 6% decline as of this writing, after The Wall Street Journal ran an article about the Chinese government considering new regulations for corporate structures.

So what: Other Chinese dot-com companies, like Baidu (NAS: BIDU) , Renren (NYS: RENN) , and Youku (NYS: YOKU) felt similar pressure, but not as badly as SINA. The corporate structure in question is known as a "variable interest entity," or VIE, and has facilitated numerous Chinese firms listing overseas and bypassing rules against foreign investment, according to a government spokesman. The VIE structure utilizes various contractual agreements that allow an offshore holding company, which can be owned by foreign investors, to manage a business within China's borders.

Now what: The Chinese government currently has regulations against foreign investment in certain sectors. Commerce Ministry spokesman Shen Danyang said the structure "so far does not have a law, regulation, or policy governing it. The Commerce Ministry and relevant departments are jointly researching how to regulate this method of investment." Shortly after, Susquehanna analysts indicated that SINA and Baidu wouldn't be subject to a potential new regulation, helping shares recover. Chinese Internet stocks have a bad habit of grouping together, sometimes unjustifiably. On top of that, they are notoriously volatile. I wouldn't jump to any hasty conclusions on today's move.

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At the time thisarticle was published Fool contributor Evan Niu holds no position in any company mentioned. Click here to see his holdings and a short bio. Motley Fool newsletter services have recommended buying shares of SINA and Baidu. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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