CHINESE investors are avoiding the first mutual funds allowed to invest overseas after they dropped just as much as funds that can only buy shares in the world's fastest-growing major economy.

The first four overseas funds, started in the fourth quarter, lost an average 20 percent from January to March, compared with the 19 percent drop by funds that invest only in local shares, according to data compiled by Bloomberg News.

"I thought diversified overseas investments could reduce risks," said Jeff Li, a 33-year-old engineer in Shanghai, who invested 28,000 yuan (US$4,000) in the Harvest Oversea Investment Fund in October. "Thank goodness I didn't put more money in."

While the original funds received orders for 2.5 times the US$16 billion of shares they were allowed to sell, since then only one fund has raised money. The Credit Suisse Group venture had bids for just 15 percent of the units on offer, the company said on February 15.

The government approved overseas investments to encourage Chinese investors to find alternatives to domestic stocks after the CSI 300 Index doubled in 2006 and 2007, prompting former US Federal Reserve Chairman Alan Greenspan and Hong Kong billionaire Li Ka-shing to warn of a market bubble.

Harvest Fund Management Co and China International Fund Management Co's funds each lost 22 percent in the first quarter. Those run by China Asset Management Co and China Southern Fund Management Co dropped 19 percent and 17 percent.