One of the most amazing things about Friday's rumored leak by Morgan Stanley bankers that Facebook would file its S-1 this Wednesday was the rumor's effect on Chinese Internet stocks.
RenRen (RENN) -– China's smaller copycat version of Facebook –- took off around 1:30pm on Friday and closed up 26.2%.
Sina (SINA) -– China's version of Twitter – closed up 12%.
Youku (YOKU) –- China's Hulu/YouTube – closed up 12%.
Even search giant Baidu (BIDU) and smaller portal Sohu SOHU, closed up 6%, while
YouTube knockoffs KU6 Media (KUTV) closed 7% higher.
One key question is why did these companies all jump?
One explanation I saw from an analyst on Friday was that investors are expecting that Facebook's IPO will be a monster positive and signal a green light that every other related stock deserves a markup -- even the ones in China that wouldn't appear to have any reason to see a material increase in their businesses post-Facebook IPO.
In addition, a lot of these stocks -- especially those similar to RenRen -- had recently been beaten down. Following its IPO last year that initially saw its stock trade up above $20, RenRen's stock price was recently in the $3 range. After Friday's relief rally, RenRen shares were trading back into the mid-$5s.
It's difficult to see how this halo effect will lasts for these stocks in the longer-term, but "longer term" might be seven months from now following the IPO.
One Chinese stock that didn't really benefit from the Facebook news on Friday was Yahoo! (YHOO). Although most Americans don't think of it as a Chinese company, its valuation is really entirely based on its 40% stake in private Alibaba Group. Most surmise Yahoo!'s core business is currently being valued at near a negative $2 billion market cap if that's possible -- maybe investors are discounting based on the expected pink slips that will have to be sent out.
Yahoo!'s shares did rally after 2 p.m. EST on Friday, but only closed up 1.3% on the day.
I have argued recently that Alibaba Group is the most valuable of Chinese Internet companies and it could achieve a $65 billion valuation if it were to go public tomorrow. It might not have its IPO until late 2012 or early 2013, but it already seems to be growing much faster than the other two Chinese Internet giants: Baidu at $45 billion and Tencent (TCEHY) at $43 billion.
Will there be a delayed effect on Yahoo!'s share price this week? I suspect so, if those other Chinese companies' valuations remain strong. RenRen's stock was already trading up another 1% this morning.
If they're getting some Facebook multiple love, than Alibaba Group (and, therefore, Yahoo!) should be, too.