Middle Eastern stock markets ended a grim year with mixed performances on Thursday, 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 this 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 next 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 on Thursday, found 50 percent expecting to raise their regional equity allocations in the next three months, and 14 percent 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 percent on Thursday, stabilising after two days of falls triggered by austerity measures in the state budget. It fell 17.1 percent throughout this year, in line with a 17.2 percent slide by MSCI's emerging market index.
Some petrochemical shares, hit by gas feedstock price rises in the budget, stopped falling on Thursday. The biggest stock in the sector, Saudi Basic Industries, edged up 0.3 percent.
However, Saudi Kayan lost a further 2.2 percent and PetroRabigh 2380 SE> fell 2.0 percent 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 200 million riyals ($53.3 million).
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 percent after saying it had taken a 135 million riyal interest-free Islamic loan from its major shareholder.
Dubai's index was almost flat, closing with an annual loss of 16.5 percent. Trading volume more than halved from the previous day as foreign investors took year-end holidays.
Abu Dhabi gained 0.7 percent on Thursday for a 5.6 percent drop over the year. Telecommunications blue chip Etisalat rose 1.3 percent on the day while Abu Dhabi National Energy climbed 4.4 percent after saying it had obtained its first oil from its new Cladhan field development in Britain's North Sea.
Qatar was almost flat on Thursday and lost 15.1 percent over the year.
Egypt's index rose 0.4 percent to 7,006 points on Thursday 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 percent.
Ajwa Food Industries gained 7.7 percent 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.
Twenty-nine percent of managers now expect to raise their allocations in Cairo and none to cut them, the survey found. Last month, 29 percent anticipated reducing allocations and 14 percent raising them.