Long-term Returns to Dutch and Indonesian stocks

Long-term Returns to Dutch and Indonesian stocks

Bryan Taylor, Chief Economist, Global Financial Data

Before World War II, colonial stocks listed on the stock exchanges of the mother country.  Stocks of the British Empire, such as South Africa, Australia and New Zealand, listed in London, stocks from French Indochina and French West Africa listed in Paris, stocks for the Belgian Congo listed in Brussels and stocks for the Netherlands Indies listed in Amsterdam.

               Most non-European countries went to London to raise capital for local banks and railroads in the 1800s.  This included not only the British Empire, but most of South America.  Russian companies went to either Berlin or Paris and most eastern European countries went to Berlin.  Frans Buelens and Stefaan Marysse provided a good analysis of Belgian Congo stocks in their article, “Returns on Investments during the Colonial Era: The Case of Congo.” They found that Congo stocks provided a greater return with greater volatility than Belgian stocks. Some of the larger companies listed in multiple exchanges, such as Paris and London for the Suez Canal.  Nevertheless, it would be beneficial to look at other countries and see what happened.

               One country that hasn’t been explored is the Netherlands and their colony, the Netherlands Indies (Indonesia).  The Netherlands has more stock market history than any other country.  Trading in shares of the East India Company began trading in Amsterdam in 1601 and continued to trade until the company went bankrupt in 1794.  After the Vereenigde Oost-Indische Compagnie (VOC) issued its shares in 1601, the company issued new debt, but not new equity.  In 1794, the company collapsed under the weight of its debt and went bankrupt.  Both the French East India Co. and the Dutch East India Co. went bankrupt or were closed down in the 1790s.  There was no trading in equities in either Paris or Amsterdam during the late 1790s.

               The Banque de France was founded in 1800, De Nederlandsche Bank in 1813 and the Oesterreichische Nationalbank in 1816.  During the Napoleonic Wars, both France and the Netherlands defaulted on their government debt and replaced existing debt with new debt.  Any history of equities in France or the Netherlands has a gap during the Napoleonic Wars just as countries in eastern Europe have gaps between World War II and the 1990s.

No French equities were traded in Paris between 1793 and 1800 and no Dutch companies were traded in Amsterdam between 1794 and 1816. De Nederlandsche Bank was established in 1814 and the Nederlandsche Handel-Maatschappij was established in 1824 to oversee the Netherlands trade with the Netherlands Indies. GFD has collected data on stocks that traded in Amsterdam from the founding of the Nederlands Bank in 1816 to the present and put together indices of stocks’ performance in both the Netherlands and the Netherlands Indices.  In addition to this, we have collected data on Dutch government bonds back to the 1788 and on cash back to 1813.  The only other countries for which comparable long-term data are available for stocks, bond and bills are the United Kingdom, the United States, France and Austria.

Netherlands Shares Before the Napoleonic Wars

               If you look at Figure 1, you see an index of Dutch shres between 1601 and 1794.  The index rose steadily during the 1600s as the dividends paid by the Dutch East India Co. and the price of the stock rose.  The stock peaked during the bubble in 1720 that affected not only French and English stocks, but Dutch stocks as well.  During the rest of the eighteenth century, the VOC issued more debt, but not more equity.  Profits from the Dutch East India Co. declined and the company issued more debt until the debt load became unbearable and the company collapsed into bankruptcy.


Figure 1.  GFD Index Netherland Stocks, 1601 to 1794

               The yield on Dutch bonds 1400 to 2022 is illustrated in Figure 2.  There was a steady decline between 1400 and 1700 when bond yields began to stabilize. There is very little data on bond prices during the 1700s, but for the most part, bond prices for the 2.5% bonds stayed around par.  The Netherlands went into default after France conquered the Netherlands.  Existing bonds were converted into new bonds in 1814 with investors receiving 1/3 new bond for each old bond.  The 2.5% yield acted as a floor on bond yields with prices usually lower than par.  Yields declined during the 1800s, rose after World War I, declined again until the 1940s, then followed the interest rate pyramid, rising from the 1940s to the 1980s and then declining to negative yields by 2020. Historically, the Netherlands has had low inflation and low bond yields.  The Netherlands and Switzerland are the only two countries whose currency depreciated less than the United States Dollar since the onset of World War I.

               The Batavia (now Jakarta) Stock Exchange opened in 1912, was closed between 1914 and 1918 due to World War I and reopened after the war.  Stock exchanges were also opened in Semarang and Surabaya.  However, all three stock exchanges were closed in 1939 because of World War II.  The Jakarta Stock Exchange was reopened on August 10, 1977, but trading was limited until the stock exchange was deregulated in 1987.


Figure 2.  Netherlands Government Bond Yields, 1400 to 2022

               The performance of Dutch stocks between 1816 and 2022 is illustrated in Figure 3.  Dutch stocks generally rose in price during the 100 years between 1816 and 1914, but then declined after World War I, rose slightly during the 1920s, then collapsed to all-time lows during the 1930s.  It wasn’t until the 1950s that Dutch stocks had reattained levels they had been at before World War I.  Since 1950, however, Dutch stocks have done well, providing high returns to investors. Before the 1930s, all of the return to investors came in the form of dividends.  Since the 1930s, capital gains have provided the principal source of returns.