* Most positive on Saudi stocks since February 2015
* UAE still region's most favoured stock market
* Qatar loses some favour on relative valuations
* Managers turn bearish on Egypt over FX shortage
* Slightly more positive on Middle East fixed income
By Celine Aswad
DUBAI, Feb 29 (Reuters) - Middle East fund managers have become more positive on Saudi Arabian equities after valuations dropped and because of signs that oil prices may be bottoming out, a monthly Reuters survey shows.
Late last year, managers became bearish towards the Arab world's biggest stock market as low oil prices damaged the government's finances, making major austerity measures inevitable. In last month's survey, 29 percent said they expected to raise their Saudi equity allocations over the following three months and 21 percent to cut them.
But in the most recent survey of 14 leading fund managers, conducted over the past 10 days, 43 percent said they expected to boost their allocations to Saudi stocks - the highest figure since February 2015. Only 7 percent anticipated reducing allocations.
Mohammed Ali Yasin, managing director of Abu Dhabi's NBAD Securities, said that after recent drops in stock prices, dividend yields in the kingdom were some of the highest regionally.
Overall, the survey showed 36 percent of respondents expecting to increase exposure to Middle East equities, while 7 percent foresaw cutting them. That was not significantly changed from ratios of 43 percent and 7 percent last month.
Despite rebounds of around 10 percent or more in Gulf stock indexes since mid-January, many managers are not convinced an extended recovery is necessarily starting, given the volatility of oil prices and the fact that austerity measures across the region have yet to make themselves fully felt.
"Oil prices will continue to hold sway over investor sentiment over the next few months. Consequently, we expect sentiment to remain subdued with a negative bias in the first half," said Sachin Mohindra, portfolio manager at Abu Dhabi's Invest AD.
The United Arab Emirates is the favoured stock market among survey respondents for a ninth month in row; 57 percent expect to raise UAE equity allocations and none to cut them. In last month's survey, the ratios were 57 percent and 7 percent.
"UAE markets have shown signs of recovery in terms of turnover and prices, after a long term bearish trend since May 2014," said Tamer Kamal, head of asset management at the country's Union National Bank.
But Qatar has lost some favour with portfolio managers, as 14 percent now expect to raise allocations there and the same number to cut them. Last month, 43 percent expected to boost holdings in Qatar and 7 percent to reduce them.