BOSTON ( TheStreet) -- About a dozen Chinese stocks trading in the U.S. are playing growing roles in mutual funds as the economy of the world's most populous nation booms.
Energy, Internet and technology companies are the most widely held Chinese stocks. They're bought and sold as American Depositary Receipts (ADRs).
That's because of investors' recognition that China's rapidly growing economy and living standards are resulting in increased demand for electricity and gas, while its expanding middle class is eager for more Internet and telecommunications services.
Internet-services stocks are the most popular. Baidu (BIDU - Get Report), the Chinese-language equivalent of U.S. search engine Google (GOOG), has 54% institutional fund ownership, about half that from mutual funds, including T. Rowe Price (TROW) funds' 4.5% stake.Sohu (SOHU), the leading Internet portal in China with seven branded Web sites, has 70% institutional ownership, about half of that made up of mutual funds, including a 6.1% stake owned by the $23 billion Oppenheimer Developing Markets Fund (ODMAX). Many other Chinese companies trading on the Hong Kong market, and with huge market values, are being sought out by several large, region-focused U.S. funds, but they remain under the radar of most individual investors since Wall Street analysts don't provide coverage. Still, more Chinese companies now meet U.S. accounting and regulatory standards. Morningstar stock analyst Allan Nichols said the allure of Chinese stocks is the nation's annual economic growth rate of about 10%, about three times that of the U.S. As growth has slowed in the U.S. and Europe, investors have cast a bigger net and so are making allocations to markets that previously were considered dubious for political reasons or because of a lack of financial transparency. "The risk in China is a lot less than it used to be," he said. "It's higher risk than in the U.S., but it's certainly nothing like it was 10 years ago," so investors are saying, 'China's been growing like crazy, let's get on the band wagon.' " But he cautioned that individual investors should best take a long-term perspective when buying many of these stocks since they have appreciated so much recently. "These stocks are pricing in a lot of growth. We think short-term, most of them are overvalued," but given the growth prospects of their markets, they could potentially realize significant value over time. China region mutual funds are about break-even this year, losing an average of 0.03% in the first quarter, but over the past 12 months, they're up 15%. Here are six China-based ADR companies that are popular with professional U.S. investors: