Booming energy prices mean there are billions of West Asian petro-dollars looking for a home. Last week, both the Qatar Investment Authority and the Dubai Borse, both owned by their respective governments, seized stakes in the London Stock Exchange.

So why are Qatar and Dubai taking stakes in Europe’s third largest stock exchange? The answer is simple: The Gulf States have money to spend. Qatar, in particular, has benefited from the surge in energy prices after investing in its gas network in the 1990s. Only six per cent of Dubai’s economy is based on oil and gas, but it has also boomed as a result of its role as the gateway to West Asia. Both states have money to spend and want to diversify away from oil and gas, so they are not exposed to a crash in commodity prices. For instance, the Qatar Investment Authority — through its investment vehicle Delta Two — is currently trying to buy UK supermarket group J Sainsbury.

This represents an increased willingness not just to take stakes in overseas companies, but to buy them outright in a “private equity”-style approach.

The Qatar Investment Authority does not publish information on its investments, but some experts have estimated it has assets of about $50 billion. Borse Dubai is actually a very small exchange by international standards, but the fact that it has backing from the Dubai government means it is playing a big role in the consolidation of world stock exchanges.

The Dubai government is not content simply to diversify its assets. It has ambitions to turn the country into a world financial hub. Its 2015 Dubai Strategic Plan said “financial services and capital markets” would be a “key focus area”. A partnership with the London Stock Exchange and the ability to share technology will help it achieve this objective.

There has also been less interest from West Asian countries in investing in the United States as a result of the continued weakness in the dollar, which makes investments in the US less profitable. There are also obstacles to West Asian businesses owning companies in the US. The announcement this week that Borse Dubai is taking a stake in the NASDAQ exchange is going to be investigated for “security implications”.

New procedures were introduced when Dubai Ports World, another Dubai-controlled company, was forced to abandon its purchase of six US port operations on security grounds. The problems in the US means investing elsewhere has its attractions.

The statements of the Qataris and Borse Dubai provide few clues whether either will attempt a full takeover of the London Stock Exchange. Soud Ba’alawy, vice chairman of Borse Dubai said: “We are strong believers in the continued strength and success of London as a leading global financial centre, and our investment demonstrates our commitment to that continued success”.

The Qatar Investment Authority said that it did not intend to make a full takeover offer for the London Stock Exchange, but said it reserved the right to change its position if another offer was made.

BBC News