DUBAI  - The planned liquidation of the Middle East's biggest private equity firm has hurt sentiment toward stocks in the United Arab Emirates, while Kuwait's outlook is bullish as it may join MSCI's emerging market index, a Reuters poll showed on Thursday.

Dubai-based Abraaj filed for provisional liquidation in the Cayman Islands two weeks ago after a row with international investors over how it used their money in a $1 billion healthcare fund. Abraaj denied it misused the funds .

The Dubai stock index fell nearly 10 percent after the filing as investors fretted about regulatory and corporate governance standards in the UAE and the potential financial impact of the liquidation on listed firms.

UAE authorities have issued arrest warrants for Abraaj's founder and another executive for issuing a cheque without sufficient funds, according to a prosecution document seen by Reuters.

Last week, shares in Dubai-listed Air Arabia plunged after the airline disclosed it had total exposure of $336 million to Abraaj.

"We see value emerging in the UAE markets; however, sentiment is poor given the corporate governance issues at some companies," said Vrajesh Bhandari, portfolio manager at Al Mal Capital in Dubai.

Akber Khan, head of asset management at Al Rayan Investment in Doha, said Air Arabia's disclosure was a reminder of corporate governance risks for the region as a whole.

Fifteen percent of funds now expect to raise allocations to UAE equities in the next three months. The same proportion expects to reduce them, according to the latest monthly poll of 13 leading Middle East fund managers, conducted over the past week.

That is a big decline from the previous month's poll, which found 54 percent of managers expected to raise allocations to UAE equities and none planned to reduce them -- the most positive balance for the UAE since January 2017. In that poll, many managers cited cheap valuations for UAE stocks.



The latest poll found 31 percent of funds expected to raise their allocations to Saudi Arabian equities and 15 percent to reduce them, a marginally less positive ratio than the result of the previous poll.

International index compiler MSCI decided this month to upgrade Saudi Arabia to emerging market status, which is likely to attract billions of dollars of fresh foreign money next year.

However, the decision had been widely expected and Saudi equities had already surged in anticipation, so valuations are generally no longer cheap, fund managers said.

The latest poll found managers were most positive about Kuwaiti equities. Sixty-two percent now expect to raise allocations there and none to reduce them -- the most bullish balance for Kuwait since August 2017 -- compared with ratios of 23 percent and zero in the previous poll.

MSCI decided this month to begin considering a possible upgrade of Kuwait to emerging market status; some fund managers had not expected it to make this decision so soon. In addition, FTSE Russell has said it will start moving Kuwait to secondary emerging market status this September.

(Reporting by Andrew Torchia, editing by Larry Kiing) ((; +9715 6681 7277; Reuters Messaging: