Recent posts have commented on the developing rift between Yahoo (ticker symbol YHOO) and Alibaba, the Chinese e-commerce outfit in which Yahoo holds an approximate 40% stake, due to the spin off of Alibaba’s online payment unit by Alibaba last August, 2010, without informing the shareholders or even the board of directors of Alibaba. An item in today’s edition of Bloomberg (bloomberg.com) reports that the disagreement reflects a worsening of relations between companies that have clashed over Chinese censorship rules and Yahoo’s unwillingness to sell its stake. It also cast doubt on Yahoo’s ability to benefit from its part ownership of Alibaba Group, which includes e-commerce sites Alibaba.com and Taobao. Yahoo’s holdings in Alibaba are a prime reason some investors have been drawn to purchases of Yahoo’s shares. The loss of the online payment unit without compensation to shareholders potentially adversely affects the valuation assigned to Yahoo’s Chinese assets and investments.

“It gives pause,” said Ryan Jacob, portfolio manager of the Jacob Internet Fund in Los Angeles. “Yahoo’s Asian assets are really the main reason that we have it as a large position in our fund.” Other investors, including David Einhorn’s Greenlight Capital Inc. hedge fund, have bought Yahoo because of its stake in Alibaba. The holding helps it benefit from demand in China, the world’s No. 1 Internet market with 457 million users.

“It does look dubious for Alibaba to backdoor this without at least floating the idea first,” Michael Clendenin, managing director at research company RedTech Advisors in Shanghai. “Yahoo should not be happy about this. From a corporate governance point of view, Alibaba should know better. It’s very messy the way Alibaba went about this.” The lack of transparency and disclosure exhibited by Alibaba in the matter is a prime example of why investors are becoming increasingly concerned about investments in China, as commented upon by this author in other recent posts.

Yahoo’s stock price is being duly punished by investors who have been actively selling. Shares currently trade at $15.81, down nearly 5% today from their close on May 13, 2011, and nearly 20% just in the past week on the news.