Sina Leads Weekly Tech Rout on Online Crackdown: China Overnight

Apr 27, 2014 12:00 pm ET

April 28 (Bloomberg) -- Internet companies led the worst weekly decline since mid-March in Chinese stocks trading in New York as the government cracked down on online pornographic content and U.S. technology shares slumped.

The Bloomberg index of the most-traded Chinese stocks in the U.S. dropped 2.3 percent in the week as Sina Corp., owner of a Twitter-like service, plunged 15 percent, its steepest weekly retreat since November 2012. Video website Youku Tudou Inc. tumbled and social entertainment platform YY Inc. slipped to a two-month low.

The government plans to revoke two of the company’s licenses as part of an official campaign after pornographic content was posted on Sina, Xinhua News reported April 24. Losing the licenses would mean all of Sina’s news and video content would be taken offline, a spokeswoman for Sina said the next day. The Nasdaq Composite Index, where 95 Chinese companies trade, sank 1.8 percent April 25 as Inc. forecast an operating loss in the current quarter.

“Any online video provider would have some risk, especially Youku with its user-generated content,” Praveen Menon, an analyst at Bloomberg Industries, said in a phone interview from New York on April 25. China’s crackdown is “definitely something to be taken seriously.”

Official Campaign

Twenty articles and four videos posted on contained pornographic content, Xinhua News Agency said, citing a statement from the National Office Against Pornographic and Illegal Publications. China censors the Internet heavily, blocking websites including Facebook and deleting postings on microblogging services like Sina’s Weibo Corp. that it deems a threat to social stability. The government said this month that the campaign against pornography will continue until November.

Sina is in discussions with government officials after being notified that its licenses may be revoked, said Wan Rui, a Beijing-based spokeswoman for Sina. The company apologized April 24 for allowing pornographic content and said it will accept “strict” punishment, according to a statement on its official microblog.

Amazon plunged 9.9 percent to $303.83 on April 25 after predicting an operating loss in the current quarter, contributing to a 1.8 percent decline in the Nasdaq Composite. The online retailer is pouring cash into expanding its business at the expense of profits.

Sina, based in Shanghai, tumbled 6.8 percent April 25 to a one-year low of $48.15. Youku sank 7.2 percent to $24.14 last week while Guangzhou, China-based YY declined 5.9 percent to $63.21.

Alibaba’s Debut

Investors are also preparing for the New York debut of Alibaba Group Holding Ltd., China’s largest e-commerce company, which is expected to file for an initial public offering that may be bigger than the $16 billion raised by Facebook Inc. in 2012.

“One of the things that’s put pressure on the sector has been the expectation of a very large Alibaba IPO,” David Riedel, founder of the Riedel Research Group Inc. in New York, said in a phone interview April 25. It would be hard for investors to ignore Alibaba in the Internet sector, he said.

Alibaba last month began the process for a U.S. IPO. While it hasn’t said how much it will seek in the sale, a person with knowledge of the matter said the company may sell a stake of about 12 percent. That would make it a $20 billion deal based on the $168 billion value assigned to Alibaba in a Bloomberg survey of analysts.

The iShares China Large-Cap ETF, the largest Chinese exchange-traded fund in the U.S., declined 3.1 percent last week to a one-month low of $34.70. The Standard & Poor’s 500 Index dropped 0.8 percent as quarterly results disappointed and tension escalated over Ukraine.

The Hang Seng China Enterprises Index of mainland stocks traded in Hong Kong fell 1.4 percent to 9,798.70 April 25, extending its weekly slump to 2.8 percent. The Shanghai Composite Index decreased 1 percent to 2,036.52.