Chinese Stocks Plunge; Baidu and Sina Fall 6%

Sellers were active on the open on Tuesday in shares of Chinese ADRs. The weakness in a variety of Chinese shares may be related to the continued reverberations of widespread fraud in the sector. At last check, Baidu

was down more than 6 percent to $89.83. The stock has been very weak in recent months and is now down around 23 percent in 2012. Baidu is the leading Chinese language search engine company. Related company SINA.com

was also down more than 6 percent and plunged after the opening bell. SINA runs a Twitter-like service in China and is a leading online media company in the country. Both stocks are attracting very heavy volume, indicating that institutions are moving large amounts of stock in these names on Tuesday. Nearly 7 million BIDU shares had traded hands during the first 2 hours of trading compared to a full-day average volume of around 5.4 million. Almost 5 million SINA shares had traded compared to an average daily volume of 2.4 million. Other stocks that are being effected include Youku Tudou

and Sohu.com

, which were down 4.4 percent and 3 percent respectively. The activity in SINA and BIDU, in particular could represent a near-term inflection point. Both stocks have been under pressure in 2012, and interested investors may see Tuesday's high-volume sell-off as a potential capitulation buy point. Nevertheless, fraud rumors continue to plague the entire Chinese ADR sector and the stocks remain risky. A spate of reverse-merger frauds in the space have, unfortunately, painted all Chinese ADRs in a suspicious light and it takes little else than negative rumors to drive them lower.