Chinese stocks rose to their highest level in more than 3-1/2 years on Tuesday, led by continuing gains in brokerages and infrastructure firms on views the current rally can keep going.

The CSI300 index rose 3.0 per cent to 3,351.29 points at the end of the morning session, while the Shanghai Composite Index gained 1.2 per cent to 3,057.74 points.

For both indexes, those levels were the highest since April 2011.

But Hong Kong investors have become cautious after the multi-week rally in mainland markets, with some locking in profits.

The Hang Seng index dropped 0.9 per cent, to 23,827.37 points. The Hong Kong China Enterprises Index lost 1.2 per cent, to 11,731.68 points.

In mainland markets, “blue-chip shares could continue to rise and start to correct by the year-end’’, predicted Zhang Gang, an analyst in Shanghai at Central China Securities.

Brokerage, infrastructure sectors

The brokerage sector remained strong. Hong Yuan Securities Co Ltd, CITIC Securities Co Ltd, Southwest Securities Co Ltd, Western Securities Co and Haitong Securities Co Ltd all climbed by the 10 per cent daily limit.

The infrastructure sector also outperformed, with the CSI300 subindex soaring 5.5 per cent on Tuesday.

In Hong Kong, the mainland rally was increasingly seen as a bit over-stretched, causing some investors to move to sectors such as infrastructure companies.

While some people in Hong Kong believe mainland markets can stay strong, “the risk has increased. Why not take some profits from Chinese financials?’’ said Alex Wong, director at Ample Finance Group in Hong Kong.

“Infrastructure shares still look cheap, and investors expect the policy (from the mainland) to drive earnings as China wants to boost infrastructures by developing more projects,’’ Wong said.

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