Overseas Mutual fund managers have had a good run with Chinese stocks, but some are now backing off, saying China's market is a bubble that will burst sooner rather than later.

The Chinese market appears to be in the "later, waning stages of a bubble," said Justin Leverenz, manager of the nearly $13.5 billion Oppenheimer Developing Markets Fund. The fund is now "extraordinarily lean" in exposure to Chinese stocks, he said.

Leverenz, who looks to double his investment over a three-year, four-year or five-year time period, said he expects that "a significant contraction" in the valuation of Chinese equities will play out much more rapidly than that. He noted that China's domestic A shares have risen nearly 500 percent over the last two years. "2008 will be an incredibly difficult year for Chinese equities."

Other fund managers agree and are pulling money out of Chinese shares, though a few said they're still finding buys in select H shares, those of mainland-registered companies listed on Hong Kong's stock exchange.

Antoine van Agtmael, chief investment officer of Emerging Markets Management, who is credited with coining the term "emerging markets" in 1981, said China's booming economic story is real, but its stock markets have been bought up in a mania.

Van Agtmael said he reduced his investments in China quite a while ago, likely a mistake because it was too early. Though he still believes China's story is a good one, he said, "I don't trust this phenomenal rise in the A share market and now the H share market at all."

Both markets are in a bubble, and "like all bubbles, it will end in tears," said van Agtmael. "I believe this is going to be sooner rather than later."

Uri Landesman of ING Investment Management agreed that China is a great long-term story, but said "it's a great long-term story with a lot of volatility."

One sign of the froth: six of the 10 top-performing mutual funds this year through November 30 have China in their names, according to Morningstar. Among them are AIM China A, which has a total return of 86.12 percent in the period; Nationwide China Opportunities A, which has gained 83.43 percent in the period; and Matthews China, which has gained 75.83 percent, according to Morningstar.

But the mania appears to be waning. Brad Durham, managing director at Boston-based fund tracker EPFR Global, said that inflows to dedicated China funds and Greater China funds, which can invest in the Chinese mainland, Hong Kong and Taiwan companies that are doing most of their business in the mainland, have not been as excessive as they were last year.

The China-dedicated equity funds that the firm tracks - which don't include the domestic mutual funds in China open only to Chinese investors - had outflows of $3.43 billion this year through November 28, while Greater China funds had inflows of $2.95 billion in the period, Durham said. The Greater China funds are a bit more diversified, which likely makes investors more comfortable, he said.