Italy After Unification
Bryan Taylor, Chief Economist, Global Financial Data
Global Financial Data continues its mission of collecting historical data on stock markets throughout the world to provide the longest equity histories available for every country in the world. GFD has collected data from a number of sources to extend the data series for Italy back to 1856.
Italy provides an important addition to the collection of countries with equity data in the 1800s. Between 1856 and 1947, Italy industrialized, unified the nation together both through building railroads and by forging the Italian peninsula into a single country. Italy fought in both World War I and World War II and suffered high inflation after World War II. Italy is of particular interest because it had one of the lowest returns to stocks and bonds of any country in Europe in the twentieth century. An analysis of data from the nineteenth century will determine whether Italy’s low returns existed before World War I as well.
The primary source that GFD used for Italy during the nineteenth century was Mario da Pozza and Giuseppe Felloni’s La Borsa Valori di Genova nel Secolo XIX (The Genoa Stock Market in the Nineteenth Century). Pozza and Felloni collected data for 14 stocks on the Genoa stock exchange between 1856 and 1896 and provided price, capitalization, dividend and corporate action data on those companies. In addition, GFD used various issues of Indici e Dati relativi ad Investimenti in Azioni Quotate nelle Borse Italiana which provided price, dividend and share outstanding data on companies listed on the Milan Stock Exchange beginning in 1928. For the years between 1896 and 1928, we relied on two newspapers to collect data, the Corriere della Sera which was published in Milan and provided data on the Milan and Rome stock exchanges from 1881 until the present and the La Stampa newspaper published in Turin which continued the data series in the La Borsa Valori book from 1897 until the 1914. The Annuario Italiana del Capitalista provided price data, dividend data, shares outstanding, par values and founding dates for corporations listed on all of the exchanges in Italy. Finally, La Societa Quotate alla Borsa Valori di Milano dal 1861 al 2000 provided histories of each company that listed on the Milan Stock Exchange between 1861 and 2000. By combining the resources of these books and newspapers, we were able to put together data histories on over 100 stocks that traded in Milan, Rome and Genoa between 1856 and 1947 so we could calculate indices for Italy over a 90-year period.
The years before 1905 were terra incognita until now. The surprise here is that although the Italian stock market showed dramatic declines between 1914 and 1945, returns were relatively stable until World War I. The performance of the Italian stock market between 1856 and 2024 is illustrated in Figure 1. The Italian stock market rose in price between 1856 and 1871 by which time the Italian peninsula had been forged into a single country, but Italian equities made no progress between 1871 and 1932. In fact, the stock market declined during those sixty years in nominal terms.
Although Italy participated in World War I on the side of the allies between May 1915 and November 1918, Italy suffered during the post-World War I recession like every country did. Mussolini was in power between 1922 and 1945, and the stock market did poorly while Mussolini was in power. Italy’s participation in World War II led to wide-scale destruction of the Italian economy. The large stock price gains between 1940 and 1948 were primarily due to inflation. Relative to consumer prices, however, the Italian stock market declined between 1939 and 1945. The Italian economy recovered dramatically from World War II in the 15 years that followed the end of the war. The stock market declined between 1960 and 1977, recovered between 1977 and 2000, but has made no progress since then. Italy suffered from a lack of political stability and from inflation until it joined the Euro in 1999. The Italian stock market has failed to exceed the highs it reached in 2000. Italy has performed as poorly during the first quarter of the twenty-first century as it did during the first quarter of the twentieth century.
Figure 1. Italian Stock Market Price Index in ITL/EUR, 1856 to 2024
A better understanding of the Italian stock market is provided in Figure 2 which adjusts the stock price index for inflation. The Italian stock market has fluctuated between periods of gradually rising real stock prices and periods of dramatic declines. The addition of the stock market data in the 1800s shows that the Italian stock market was relatively stable until World War I. The stock market rose in value between 1860 and 1890 but declined for the next 55 years until 1945 with particularly large drops during World War I and World War II. The market recovered between 1945 and 1960, but collapsed again, falling to new lows by 1977. The market recovered until 2000 but is currently below where it was 25 years ago.
Figure 2. Italian Stock Market Index Adjusted for Inflation, 1856 to 2024
The relative performance of stocks, bonds and bills is illustrated in Figure 3. Between 1873 and 1914, stocks provided positive returns after dividends, as did bonds and bills. However, between 1914 and 1945, after inflation, total returns to stocks, bonds and bills were all negative. Stocks did well between 1945 and 1968 and between 1981 and 1999 but have barely broken even since then. Bonds did well between 1981 and 2019 when government bond yields plummeted from 21.4% to 1.4% but have provided negative returns during the past five years when interest rates have risen.
If you compare returns between stocks, bonds and bills, it is interesting that all three provided similar returns between 1856 and 1939. It was only during the post-war inflation and recovery that stock returns exceeded the returns to bonds and bills. This occurred both because stocks were able to keep up with the post-war inflation better than bonds and bills since stocks were backed up by real assets, not financial paper, and because corporations benefitted from the post-war recovery. Between 1968 and 1999, returns to stocks and bonds were similar with the Equity Risk Premium close to zero. Between 1999 and 2019, bonds outperformed stocks as Italy benefitted from the declining bond yields which the Euro provided Italy, and the stock market stagnated. The most important fact the extension of the Italian data back to 1856 revealed was the similarity in returns between stocks, bonds and bills between 1856 and 1939. We now have a better understanding of the periods when stocks outperformed bonds and when they did not.