Middle Eastern stock markets ended a grim year with mixed performances yesterday, but there were signs they could fare better in 2016. 
Saudi Arabia, Dubai, Egypt and other regional bourses were caught in an emerging market downturn last year and the Gulf was hit by shrinking oil revenues, while a severe foreign exchange shortage plagued Egypt. 
There is likely to be more pain ahead. Gulf governments are starting to cut spending in response to cheap oil, which will hurt economic growth this year, while the reduction in oil revenues is pushing up market interest rates. Investors in Egypt have been disappointed by faltering economic reforms. 
Nevertheless, fund managers say there are some reasons for optimism. Expensive equities valuations have come down to more attractive levels; Saudi Arabia’s market is trading at about 13 times this year’s estimated earnings, Egypt at 10 times and Dubai at 8.5 times. 
Reforms to state spending, energy subsidies and tax systems in Gulf states may in the long term put them on a sustainable fiscal footing. Saudi Arabia released a reformist state budget for 2016 on Monday; Bahrain, Kuwait, Oman and maybe Qatar are expected to take similar steps in coming weeks. 
A Reuters survey of 14 leading Middle East fund managers, published yesterday, found 50% expecting to raise their regional equity allocations in the next three months, and 14% expecting to cut them - the largest bullish balance since February 2014. 
“Some stocks have been pressured by aggressive, redemption-driven selling flows after oil prices fell, and this correction offers medium- to long-term investors the opportunity to increase their exposure to fundamentally robust companies,” said Sachin Mohindra, portfolio manager at Abu Dhabi-based Invest AD. 
The Saudi stock index edged up 0.1% yesterday, stabilising after two days of falls triggered by austerity measures in the state budget. It fell 17.1% throughout this year, in line with a 17.2% slide by MSCI’s emerging market index. 
Some petrochemical shares, hit by gas feedstock price rises in the budget, stopped falling yesterday. The biggest stock in the sector, Saudi Basic Industries, edged up 0.3%. 
However, Saudi Kayan lost a further 2.2% and PetroRabigh 2380 fell 2.0% after saying it would restart only gradually its high-olefin fluid catalytic cracker and subordinate units after an extended maintenance period. It estimated the cost of the extra maintenance at 200mn riyals ($53.3mn). 
Major construction firm Abdullah Abdul Mohsin al-Khodari and Sons, which has been struggling with the costs of labour market reform and government spending cuts, rose 0.6% after saying it had taken a 135mn riyal interest-free Islamic loan from its major shareholder. 
Dubai’s index was almost flat, closing with an annual loss of 16.5%. Trading volume more than halved from the previous day as foreign investors took year-end holidays. 
Abu Dhabi gained 0.7% for a 5.6% drop over the year. Telecommunications blue chip Etisalat rose 1.3% on the day while Abu Dhabi National Energy climbed 4.4% after saying it had obtained its first oil from its new Cladhan field development in Britain’s North Sea. 
Egypt’s index rose 0.4% to 7,006 points after breaking technical resistance on its December peak on Wednesday, triggering a minor double bottom formed by the November and December lows and pointing up to around 7,400 points. For the year, it lost 21.5%. 
Ajwa Food Industries gained 7.7% after reporting it swung to a profit in the first nine months of this year from a loss a year earlier. 
The Reuters survey showed sentiment toward Egypt improving as new central bank governor Tarek Amer partially eases - but does not completely eliminate - investors’ worries about the nation’s foreign exchange squeeze. The central bank has repaid foreign funds their backlog of hard currency. 
Elsewhere in the Gulf, Kuwait’s index edged up 0.1% to 5,615 points; Oman’s index fell 0.7% to 5,406 points, while Bahrain’s index rose 0.9% to 1,216 points.

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