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Why Weibo Is Plunging Once Again

What happened

Shares of Weibo (NASDAQ: WB) tumbled in morning trading Friday -- down by just over 13% as of 11:20 a.m. EDT -- after the Chinese social media company removed a major fan site for one of that country's most popular actresses as Beijing exerts more control over its tech sector.

So what

The Chinese Communist Party is waging a battle against successful individuals and companies, fearing their ability to sway public opinion against the government. Videos of actress Vicky Zhao have reportedly disappeared from numerous platforms, including Tencent, iQiyi, and Youku. A Zhao fan site on Weibo's platform also was taken down.

Image source: Getty Images.

Beijing previously announced a regulatory crackdown particularly against tech stocks, but more broadly against anyone with large amounts of wealth. That accelerated last year after Alibaba founder Jack Ma criticized Chinese regulators for inhibiting growth in the country. The backlash was swift. Alibaba had been planning an IPO for its Ant Financial subsidiary, but ended up pulling it. Ma himself went into hiding and wasn't heard from for weeks.

Other companies that had been planning to list their shares on U.S. stock exchanges have also dropped those plans, and Beijing is looking at limiting CEO salaries to curb the accumulation of wealth.

Now what

Weibo has become a risky investment. The Chinese government took a small stake in the business and has a right to appoint a director to its board. After a nearly 30% plunge in July, the stock had been rebounding over the past two weeks, but after Friday morning's setback, it's down 26% from its 52-week high.

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Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alibaba Group Holding Ltd. and Tencent Holdings. The Motley Fool recommends iQiyi. The Motley Fool has a disclosure policy.


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