* Saudi purge triggered selling in stock market
* But many managers looking past that to rerform impact
* Most bullish balance towards Saudi stocks since July
* Some funds attracted by lowered Qatari valuations
* Positive on Egypt after FX liberalization
DUBAI, Nov 30 (Reuters) - Middle East fund managers have become more positive towards Saudi Arabian equities after authorities launched a sweeping crackdown on corruption, a monthly Reuters poll showed on Thursday.
Forty-six percent of funds now expect to raise their allocations to the Saudi stock market in the next three months and none to reduce them, according to the poll of 13 leading managers, conducted over the past week.)
That is the most bullish bias towards Saudi stocks since July, and compares with ratios of 31 percent and 8 percent in last month's poll, just before the purge was announced.
The crackdown, in which dozens of princes, senior officials and top businessmen were detained and over 2,000 bank accounts frozen, alarmed the stock market because of its potential to damage the economy and undermine companies linked to suspects.
As a result, foreign investors were net sellers of stocks in the first three weeks of this month, exchange data shows. They were also concerned by rising tensions between Saudi Arabia and Iran, fueled by instability in Lebanon.
But many fund managers said they were looking past the short-term instability caused by the corruption crackdown to possibilities created by Saudi Arabia's economic reform program, including privatizations, big new development projects and the plan to lift a ban on women driving next year.
"The crackdown on corruption that we witnessed earlier this month, along with escalated tensions between Iran and Saudi, pushes us to be cautious about our overall Saudi exposure," said Dubai's Arqaam Capital.
However, it added: "Short-term uncertainties are concerning, but our long-term view is net positive when putting together reform initiatives and liberalization efforts."
The non-oil part of the Saudi economy is barely growing this year and is not expected to fare much better next year because of the planned introduction of a 5 percent value-added tax.
But the government is expected to increase spending on development projects moderately in 2018 - perhaps relying in part on funds recovered in the corruption crackdown - so some funds are starting to look towards an economic recovery in 2019.
Sachin Mohindra, portfolio manager at Abu Dhabi's Invest AD, said that while economic, regulatory and social reforms in the region as a whole would sustain growth in the long term, for now "we expect regional investors to continue to exercise a lot of caution and volumes to remain subpar relative to history." Nevertheless, managers turned more positive toward stock markets in both Qatar and Egypt in the latest poll.
QATAR Thirty-one percent now expect to increase their allocations to Qatari equities and 8 percent to reduce them, compared to 15 poercent and zero in the latest poll.
Qatar's stock market has dropped to six-year lows after other states in the Gulf Cooperation Council launched an economic boycott of Doha in June, but for some fund managers, the tumble has now made valuations attractive.
"After a substantial sell-off that took place post the blockade, we see cheap valuations across value stocks which have minimal risk exposure to businesses linked to the GCC," said Arqaam.
"Concerns expressed by international investors about currency risk have been addressed by the government and the central bank."
Meanwhile, 38 percent of managers expect to raise equity allocations to Egypt and 15 percent to reduce them, compared to 23 percent and 8 percent last month.
This week Egypt's stock market hit a record high after the central bank removed caps on deposits and withdrawals of foreign currency for importers, scrapping one of the last currency controls in place since the Arab Spring uprising triggered an economic crisis in 2011. (Reporting by Andrew Torchia Editing by Jeremy Gaunt.)