A Huge Potential Risk for Baidu Investors


Follow @andrewtonner

2013 has been an incredible year for growth stocks. However, even in a year in which the Nasdaq index surged an impressive 35%, shares of Chinese search powerhouse Baidu have bounced even more. As we move toward the conclusion of another big year for the market, Baidu has more than doubled the market's performance.

BIDU Chart
BIDU Chart

BIDU data by YCharts

However, despite all the holiday cheer surrounding Baidu, there's also been one looming issue surrounding Baidu that should have investors shaking in their boots.

Bad for Baidu
Recently, Baidu and other publicly traded Chinese companies like it have been garnering a lot of attention as a result of a special legal structure they use and the potential legal implications this structure carries with it. Known as "Variable Interest Entities," or VIEs for short, this legal structure enables Chinese companies to legally circumvent Chinese government regulations that limited foreign ownership stakes in key industries or companies. This structure makes it possible for a company like Baidu to be publicly traded in the United States.

However, the Chinese Supreme Court recently ruled against the legality of the VIE structure of two publicly traded Chinese companies, raising the question of whether such an established name like Baidu could suffer a similar fate. In the video below, tech and telecom analyst Andrew Tonner discusses the story and what Baidu investors need to understand about this emerging storyline.

The Fool's top stock for 2014
There's a huge difference between a good stock, and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report: "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

The article A Huge Potential Risk for Baidu Investors originally appeared on Fool.com.

Fool contributor Andrew Tonner owns shares of Baidu. Follow Andrew and all his writing on Twitter at @AndrewTonner. The Motley Fool recommends Baidu. The Motley Fool owns shares of 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.

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Originally published