Net Stocks From China Showing Cracks

Chinese Internet stocks have finally hit a Great Wall.

That, at least, is what skeptics are arguing, in the wake of recent disclosures of insider selling and news of mobile-telephone policy changes in China.

Shares in Sina (SINA), Sohu.com (SOHU) and NetEase.com (NTES) -- all of which operate Internet and mobile-telephony-content businesses in China -- have enjoyed an amazing run over the past year, one reminiscent of the U.S. dot-com boom of the late 1990s.

At their peak in July, shares in the three companies were trading anywhere from 21 to 35 times current 52-week lows from last summer.

Now, with the trio's shares down double-digits percentagewise from their July peaks, but still at impressive levels compared to last year, investors may be asking whether the recent pullback is merely another breather in the stocks' relentless climb upward -- or the beginning of a damaging backslide like the one that began in 2000 for U.S. Internet stocks.

At issue is the same conundrum that bedeviled investors in portals such as Yahoo! (YHOO), Lycos, Excite and Disney Internet Group in the prebust era: How should one assess the potential rewards to be reaped by riding the online content wave in a massive market against the risks of minimal current profits, stock volatility, debatable measures of success and constantly shifting business models?

On Tuesday, Sohu was up 11 cents at $30.31, Sina was down 35 cents at $30.22 and NetEase was down 41 cents at $44.54.