* Gulf risks simultaneous fiscal and monetary tightening

* Most negative regional equities view since May 2015

* Bulls and bears now evenly split in Saudi

* UAE heavily favoured over other markets

* Fixed income is no safe haven

By Andrew Torchia

DUBAI, Oct 29 (Reuters) - Middle East fund managers have on balance turned negative towards equities in the region because of low oil prices, instability in the global economy and the prospect of monetary tightening, a monthly Reuters survey shows.

The survey of 14 leading investment firms, conducted over the past week, shows 21 percent expect to cut their regional equity allocations in the next three months, and 7 percent to raise them.

That is a big shift from last month's survey, when 33 percent said they expected to raise equity allocations and 7 percent anticipated cutting them.

This month's survey is the most negative towards equities since May this year, when Gulf stock markets were peaking for 2015.

Although growth in Gulf Arab economies has held up well this year, governments are expected to react to low oil prices by tightening fiscal policy next year, with the possible exception of Qatar.

This may create a drag on markets, but the extent of that drag is not yet known because governments have not yet detailed their austerity measures.

Meanwhile, the strength of the U.S. dollar, to which Gulf currencies are closely linked, and the prospect of U.S. interest rate hikes starting as soon as this year, have created the prospect of monetary tightening in the Gulf, which could be magnified as some governments borrow to cover budget deficits.

That means fixed income is no safe haven for fund managers - 14 percent expect to reduce their allocations in that asset class and 7 percent to increase them. So more money may be kept in cash.

"The widespread uncertainty in virtually every asset class is likely to continue as investors anticipate changes in monetary policy, review the unpredictable economic data and grapple with complex geopolitical issues," said V.Gowribalan, head of asset management at Ahli Bank in Oman.

SAUDI, UAE

Saudi Arabia in particular may be vulnerable to a slowdown, as the kingdom considers a range of steps - including domestic fuel price rises and cuts in state investment spending - to narrow a budget deficit that will exceed $100 billion this year.

The market is too big and liquid to ignore, so many managers said they would continue buying stocks selectively there. But a substantial number foresee reducing their overall exposure; 36 percent expect to cut their Saudi equity allocations in the next three months and the same number to raise them.

That compares with 33 percent expecting to raise Saudi allocations and 20 percent to cut them in last month's survey.

"Whilst valuations in Saudi Arabia have fallen over a period of several months, we remain cautious and extremely selective," said Sachin Mohindra, portfolio manager at Abu Dhabi's Invest AD.

"The Saudi economy is undergoing structural changes as it adjusts to a period of low oil prices, which means that the risk premiums used to value stocks need to be further adjusted, particularly in certain sectors.

"We still prefer stocks that benefit from private consumption in the kingdom, and will continue to look at yield plays."

The latest survey once again shows United Arab Emirates markets as heavily favoured over other regional bourses to ride out an era of cheap oil with relatively little damage.

Fully half of managers expect to lift UAE equity allocations in the next three months and 7 percent to decrease them, compared to 53 percent and zero in the last survey.

"We like the fact that the UAE is the most diversified economy in the region having only 35 percent of its oil related to GDP, a budget situation which is under control and market valuations which may not be attractive yet but are at least appealing," said Sebastien Henin, head of asset management at Abu Dhabi's The National Investor.

SURVEY RESULTS

1) Do you expect to increase/decrease/keep the same your overall equity allocation to the Middle East in the next three months

INCREASE - 1 DECREASE - 3 SAME - 10

2) Do you expect to increase/decrease/keep the same your overall fixed income allocation to the Middle East in the next three months

INCREASE - 1 DECREASE - 2 SAME - 11

3) Do you expect to increase/decrease/keep the same your equity allocations to the following countries in the next three months

a) United Arab Emirates

INCREASE - 7 DECREASE - 1 SAME - 6

b) Qatar

INCREASE - 2 DECREASE - 2 SAME - 10

c) Saudi Arabia

INCREASE - 5 DECREASE - 5 SAME - 4

d) Egypt

INCREASE - 4 DECREASE - 1 SAME - 9

e) Turkey

INCREASE - 1 DECREASE - 1 SAME - 12

f) Kuwait

INCREASE - 1 DECREASE - 3 SAME - 10

Institutions taking part in the survey are: Ahli Bank Oman; Al Mal Capital; Al Rayan Investment LLC; Amwal Qatar; Arqaam Capital; Emirates NBD; Global Investment House; Invest AD; National Bank of Abu Dhabi; NBK Capital; Rasmala Investment Bank; Schroders Middle East; The National Investor; Union National Bank.

(Reporting by Andrew Torchia) ((andrew.torchia@thomsonreuters.com; +9715 6681 7277; Reuters Messaging: andrew.torchia.thomsonreuters.com@reuters.net))

Keywords: MIDEAST INVESTMENT/SURVEY