* Many funds see risk of further losses in markets
* Gulf earnings may be downgraded further as austerity hits
* But funds now underweight on equities, little room to cut more
* Qatar banks seen offering attractive valuations, dividend yields
* Less bearish on regional fixed income
By Celine Aswad
DUBAI, Jan 31 (Reuters) - Many Middle East fund managers expect to start rebuilding their regional equities holdings in the next few months and have become less bearish towards bonds, a monthly Reuters survey shows.
The survey of 14 leading fund managers, conducted over the past 10 days, does not suggest funds are heavily bullish on stocks; many see a risk of further losses as austerity policies, adopted by governments in response to low oil prices, weigh on economies.
But the survey does suggest that funds have gone so far underweight on equities that they feel there is little room to continue cutting allocations, and that the next major change in allocations will be to increase them.
Forty-three percent of respondents expect to raise their Middle East equity allocations in the next three months, while 7 percent expect to cut them.
That is little different from last month's survey, when 50 percent anticipated increasing equity exposure and 14 percent expected to reduce it.
"Volatility in the international markets increased pressure on oil prices, which dropped to levels below many of the Gulf countries' conservative average crude price assumptions used for their 2016 state budgets," said Mohammed Ali Yasin, managing director at Abu Dhabi's NBAD Securities.
But he added, "We believe the first quarter of 2016 is an opportunity to build a portfolio based on value stocks with low price-to-equity values and high dividend yields."
Sachin Mohindra, portfolio manager at Abu Dhabi's Invest AD, said that while he expected markets to remain weak and volatile over the next quarter, there would be bright spots in some companies that were resilient to the economic downturn.
The survey also shows managers becoming somewhat less bearish on fixed income, after January's global market volatility appeared likely to make the U.S. Federal Reserve more cautious about tightening monetary policy.
Fourteen percent of fund managers now expect to reduce their allocations to regional fixed income and 7 percent to increase them, compared to ratios of 36 percent and zero last month.
UAE, QATAR
The United Arab Emirates remains by far the favoured equity market among its peers in the region. Fifty-seven percent of managers expect to increase exposure there and 7 percent to reduce it, compared with 71 percent and zero in December.