What's Happening: Shares of Chinese Internet company NetEase (NASDAQ:NTES) were down as much as 13% Tuesday morning. By noon, the stock had largely recovered, down about 5% on the day. There is no company-specific news driving the decline. Instead, it appears that the continuing sell-off of Chinese stocks is the culprit.
Why It's Happening: Despite the suspension of new stock listings and the creation of a $19.4 billion stabilization fund meant to prop up the Chinese stock market, Tuesday brought further declines on top of Monday's. The Shanghai Composite fell by just 1.3%, but the Shenzhen index, which covers small-cap stocks, slumped by 5.3%. In this wave of selling, a majority of U.S.-traded Chinese tech stocks are down significantly today, including NetEase.
The continuing decline of Chinese stocks has wiped out nearly $3 trillion of market value since mid-June, and crashes of this magnitude tend to hit all stocks, regardless of valuation. NetEase trades at a forward P/E ratio of about 26, not nearly as high as some high-flying Chinese tech stocks. Ultimately, once the turmoil in the Chinese stock market comes to an end, the fundamentals will matter again. Until then, investors will need a strong stomach to withstand the current volatility.
Timothy Green has no position in any stocks mentioned. The Motley Fool recommends Apple and NetEase.com. The Motley Fool owns shares of Apple. 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.
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