China and Hong Kong shares were lower by midday Wednesday as market players preferred to cut risk after escalating political tensions in the Middle East prompted a pull-back on Wall Street and in other Asian markets.

Turnover on the Hong Kong stock exchange by the midday trading break fell below HK$40 billion for the first time this week, suggesting investors were not rushing for the exit but paring certain long positions.

The benchmark Hang Seng Index .HSI was down 1.77 percent at 22,983.38 by the midday trading break, snapping a three-day gaining streak. The China Enterprises Index .HSCE of top locally listed mainland companies was down 1.41 percent, helped by the relative outperformance by the Shanghai market.

The Shanghai Composite .SSEC was 0.7 percent lower after five straight sessions of gains, with a selloff in infrastructure-related stocks such as cement producers and equipment makers.

Investors are taking into account oil prices, unstable situations in the Middle East and Africa, and yesterday's lower manufacturing activity reading. Profit-taking was definitely a contributing factor to this morning's decline, said Zhang Qi, an analyst at Haitong Securities in Shanghai.

Some investors have become more optimistic on the outlook for Chinese shares as attractive valuations after last year's underperformance and subsiding inflation fears offer opportunities to pick up bargains.

According to Thomson Reuters data, the H-share index in Hong Kong was trading at a multiple of about 9.4 times its forecast 12-month forward earnings - its lowest in two years.

However, investors are likely to wait for a pull-back in U.S. stocks -- the top performers so far this year -- to play out before putting funds aggressively into the local markets.

LOCKING IN GAINS

Construction-related counters, particularly cement producers that had seen strong gains on the back of China's plans to ramp up affordable housing, were hit as investors locked in some gains.

Anhui Conch Cement Co Ltd fell 2 percent in Hong Kong but was still up 7.7 percent on the week.

Property developers were weaker across the board with the sector sub-index in Shanghai .SSEP down 1.4 percent while the Hang Seng property index .HSNP fell 2.4 percent.

Hong Kong developers gave up Tuesday's gains after the Hong Kong Monetary Authority warned of an earlier-than-expected cycle of interest rate increases, said a Hong Kong-based head trader at an Asian bank.

Casino operators were broadly lower, despite a record month for gambling revenue in Macau, after Sands China Ltd's U.S. parent Las Vegas Sands Ltd (LVS.N) was hit by corruption allegations.

Rival SJM Holdings Ltd fell 3.1 percent while Wynn Macau Ltd was down 0.7 percent.

Macau-related casino counters have been on a tear over the past year as tourists have flocked to the world's largest gambling market.

Over that period, SJM shares have risen 190 percent while Wynn shares have more than doubled. Sands China shares have seen a relatively modest 65 percent advance although those gains easily outpace an about 10 percent rise for Hang Seng index.