If Sina Is Cooking Its Books I’ll Eat This Blog

• Posted by bbishop
• on June 5th, 2011

And wash it down with a nasty bottle of cheap baijiu.

On Friday Sina’s stock took a huge fall on more than double average daily volume, closing at 113.87, a drop of more than 11% from its intraday high of 128.17.

There was a rumor circulating that Sina ($SINA) has been cooking its books. I say bullshit. I don’t think management needs to falsify numbers, I don’t think they would even if the business had issues, and if they are making numbers up they are doing a bad job, given Sina’s results and guidance over the last few quarters.

Investors probably have a hair trigger after the epidemic of Chinese frauds, and especially after Longtop and now Sino-Forest, which appears to have fooled John Paulson and cost him several hundred million dollars.

So what happened Friday? Some guesses:

1. The rumors are true, Sina has a financial mess on its hands, and therefore the world, or at least the world of US-listed Chinese stocks, is going to end. I don’t buy it, see above;

2. A few days ago Sina looked to be headed below $100, then had a strong bounce. Some short sellers were in extreme pain and took advantage of the twitchy paranoia of China stock investors to spread a rumor to crush the stock:

3. In the wake of the Longtop and Sino-Forest messes, hedge funds with China exposure are reevaluating and starting to dump their China holdings until they can be sure they know what they are doing here. (I do occasionally take consulting gigs…) I saw an investor with a large position in Longtop a few days ago. Let’s just say that the fund leadership realized some of their assumptions about Chinese stocks listed overseas were incorrect. I have no idea if this fund started liquidating their China positions (I doubt it, as they are staffing up out here), but it is possible other funds who jumped on the China bandwagon decided it was better to leap off before another one of the wheels exploded;

4. Sina has had a great run, it does not look so cheap, Sina Weibo has competition, and so some big holders decided that in this increasingly risky environment it is better to take profits while they can;

5. Alibaba’s restructuring of Alipay and the ongoing dispute with Yahoo have made investors realize that accounting fraud is not the only material risk that needs to considered when investing in China.

I have no idea if Sina’s stock will recover or keep dropping, and I have no position in it. But if Sina shares keep falling, I do not believe it will be due to an accounting scandal. There are plenty of other more likely frauds out there.

You can follow me @Bill on Stocktwits, @Niubi on Twitter and @Billbishop on Sina Weibo.

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