New Equity Indices for Austria
Bryan Taylor, Chief Economist, Global Financial Data
One of the countries whose equity history has not been explored in detail is Austria. It is also one of the few countries for which we have over 200 years of data for stocks, bonds and bills. The only countries with longer histories are the United Kingdom, France, and the United States.
The Vienna Stock Exchange has been in operation for over 250 years, having been founded in 1771. Austria’s public debt began trading in Vienna in 1763, in Amsterdam in the 1780s and London in 1795. Shares of the Austrian National Bank began trading in Vienna in 1817. Austrian railroads and banks traded on exchanges in Austria and Germany during the 1830s and by the 1870s, hundreds of shares traded in both Germany and Austria.
Before 1914, stocks from all areas of the Austria-Hungarian Empire traded in Vienna, but after World War I, the Austro-Hungarian Empire was broken up, and the regional exchanges in Prague and Budapest became the primary national exchanges for Czechoslovakia and Hungary. In 1948, the stock exchanges in Prague and Budapest were closed when the government nationalized all the major industries. Only in the 1990s did these two exchanges reopen.
In 1913, Austria-Hungary represented about 3% of global market capitalization, but today, Austria represents only 0.10% of S&P’s Global Market Index of 50 countries and only 0.13% if you include Hungary and the Czech Republic. In 1913, the Austria-Hungarian Empire was one of the great powers of Europe, along with England, France, Germany and Russia. Vienna was a cultural center where Sigmund Freud, Gutzav Klimt, Arnold Schoenberg and others contributed to their nation’s culture.
After World War I, however, Austria suffered dismemberment, absorption into Nazi Germany during World War II, and neutrality after World War II. Today, 37 countries have stock markets whose capitalization exceeds Austria’s. Not only has the country shrunk in size, but investors have suffered some of the lowest returns of any country in the world. The question is why? Primarily, the combination of being on the losing side of both World Wars and suffering hyperinflation in the 1920s contributed to Austria’s low long-term rates of return to both stocks and bonds.
The Austro-Hungarian Empire
Before World War I, the Austro-Hungarian Empire was one of the largest economies in Europe. The Empire included all of Austria, Hungary, the Czech Republic, Slovakia, Slovenia, Croatia and Bosnia & Herzegovina as well as parts of Poland, Ukraine, Romania, Serbia, Montenegro and Italy. It should be remembered that Austria stopped the Muslim invasion of Europe at the gates of Austria in 1529 and again in 1683. Vienna became one of the most important cities of the Holy Roman Empire after the Treaty of Westphalia was signed in 1648. Most of Hungary was brought under Austrian control in 1699 by the Treaty of Karlowitz, but Austria suffered defeat during the Napoleonic Wars and the Holy Roman Empire came to an end in 1806. The Congress of Vienna in 1815 established Austria as one of the four European powers along with England, France and Russia.
Attempts to bring the German lands of the Holy Roman Empire together into a single country in the first half of the 1800s, and especially during the revolutions of 1848, failed when Austria refused to relinquish its German-speaking territories. Austria and Prussia fought a war against Denmark in 1864 which led to the Austro-Prussian War of 1866 in which Prussia was victorious. Austria’s defeat led to the Austro-Hungarian compromise of 1867 which created the Austro-Hungarian Empire in which Austria and Hungary were co-equal in power. However, the empire was multi-ethnic and the different nationalities within the Austro-Hungarian Empire strived for independence.
Archduke Franz Ferdinand was assassinated in Sarajevo in 1914 which led to the onset of World War I. After Austria’s defeat in World War I, the Austro-Hungarian empire was broken up under the Treaty of Saint Germain in 1919. This led to the creation of several new countries, Austria, Hungary, and Czechoslovakia, and the remaining parts of the Empire were allocated to Yugoslavia, Poland, Ukraine, Romania, Serbia and Italy according to their linguistic and cultural heritage. Both Austria and Hungary suffered hyperinflation in the 1920s, and Austria was annexed by Nazi Germany during the Anschluss on March 12, 1938. The country remained part of the Third Reich until Vienna’s fall on April 13, 1945. Austria was occupied by the four victorious powers until Austria declared its “permanent neutrality” in 1955. Austria joined the European Union in 1995, but has not joined NATO.
Austria Government Debt
The Vienna Stock Exchange was established in 1771 as a place where Austrian public debt could trade. Austrian debt was issued in Amsterdam, Vienna, London and other cities in Europe during the 1800s. Austria suffered inflation during the 1790s reducing the value of its banknotes to 15% of their face value. Austrian banknotes were devalued by 80% during the Napoleonic Wars. The Austrian National Bank was created in 1816 and in 1817 the bank began issuing currency. Austria suffered through revolution in 1848 and 1849, suspended payments on its debt in 1849, suffered militarily during the Prussian-Austrian conflict of 1850 and during the Crimean War of 1853 to 1856. Austria suffered defeat in the Austria-Prussian War in 1866, faced rebellion from Hungary in 1867 and suffered a “Boersenkrach” stock market crash in 1873.
Austria-Hungary was defeated in World War I and its debt was reallocated among the surviving countries with Austria taking on 50% of the empire’s debt. Hungary had issued its own debt so none of Austria’s debt was allocated to Hungary. Austria suspended payment on its foreign debt during World War II, but began servicing its debt after the war was over. From the 1980s until the 2020s, bond yields steadily declined until they went negative, though they have bounced back into positive territory since then. The yield on Austrian bonds between 1788 and 2022 is illustrated in Figure 2.
Government bonds did very poorly between the onset of World War I and the beginning of Austria’s economic recovery in 1950. Measured in US Dollars, an investor in Austrian government bonds in 1913 would have lost 99% of their investment by 1949. It would have taken until 2003 for the investor to recover the investment amount purchased in 1913. That is 90 years without any return on investment, and that is before inflation. Contrast that with the 500-fold return on Austrian debt between the end of the Napoleonic Wars in 1815 and the onset of World War I in 1914. Poor bond returns almost always are accompanied by poor equity returns.
Figure 2. Yields on Austrian Government Bonds from 1788 to 2021
National and Regional Exchanges
Most countries have seen a consolidation of regional exchanges into one national exchange. Euronext is consolidating national exchanges into a single exchange. However, because of the fissiparous nature of Austria-Hungary, the opposite happened. Several national exchanges replaced regional exchanges. Prague became the primary stock exchange in Czechoslovakia and Budapest the primary stock exchange in Hungary. Before World War I, Germany had 22 stock exchanges which were consolidated into 9 stock exchanges by the Nazis, but the regional stock exchanges in Austria-Hungary in Prague and Budapest became the primary stock exchanges in Czechoslovakia and Hungary.
The Austrian Stock Exchange was founded in 1771, the Budapest Stock Exchange was founded in 1864 and the Prague Commodities and Stock Exchange was founded in 1871. There were also stock exchanges in Trieste, which had been founded by Maria Theresa in 1775 and became an Italian regional exchange, and in Timisoara in Romania. During World War II, Austria was absorbed into Nazi Germany and the national stock market of Austria became a regional stock market within Germany. The same was true of the Prague Stock Exchange in Czechoslovakia which became the Protectorate of Bohemia and Moravia.
The Budapest and Prague stock exchanges were closed in 1948 after the governments of Hungary and Czechoslovakia nationalized the majority of private firms. Stock exchanges in Romania, Bulgaria, Yugoslavia and Poland were also closed after the Communists took over governments in Eastern Europe.
The Budapest stock exchange reopened in 1990 and the Prague Stock Exchange reopened in 1993. The Ljubljana Stock Exchange opened in Slovenia in 1989, the Bratislava Stock Exchange opened in Slovakia in 1991, the Zagreb Stock Exchange opened in Croatia in 1991, and the Sarajevo Stock Exchange opened in 2001. None of these countries had stock exchanges before the 1990s.
This means that instead of calculating a single stock market index for Austria-Hungary, we must calculate four stock market indices, one for Austria-Hungary before the 1920s, one for Austria, one for Hungary and one for Czechoslovakia. We can put together an index for Czechoslovakia by separating out the performance of Czech stocks on the Vienna stock exchange before 1914 and on the Prague stock exchange after 1918. We could do the same for Austria and for Hungary. An index of all stocks traded on the Vienna Stock Exchange before World War I could create an index of stocks for the Austro-Hungarian Empire.
Today, there are seven exchanges now where there once was one. While shares from Austria, Hungary and Czechoslovakia traded on the Vienna Stock Exchange before World War I, some Hungarian shares only traded in Budapest and some Czech shares only traded in Prague. After the Empire was broken up, new shares were restricted to their new national borders. We will treat each of these stock exchanges separately.
The Vienna Stock Exchange
The Vienna Stock Exchange was founded on September 2, 1771 to trade bonds, bills of exchange and foreign exchange. Austria issued debt to cover the costs of the Seven Years’ War with Prussia and it needed a market for its debt. Raising the debt outside of Austria was proving too expensive, so debt was issued in Austria and traded on the Vienna Stock Exchange. Until 1817, only bonds and currencies traded on the exchange. In 1818 shares in the Austrian National Bank (Oesterreichsche Nationalbank) were issued and these shares traded not only in Vienna, but in Amsterdam and became the first shares to trade on the Frankfurt Stock Exchange in 1821. Austrian National Bank shares eventually traded in Vienna, Prague, Trieste, Budapest, Timisoara, Augsburg, Frankfurt, Munich, Berlin, Leipzig, Hamburg, Amsterdam, Paris and London. Figure 3 shows the behavior of Austrian National Bank shares before World War I.
Figure 3. Austrian National Bank 1816 to 1916
In the 1830s, railroads appeared and absorbed capital in both Germany and in Austria. Railroad stocks peaked in 1845, began their decline, and then crashed during the 1848 revolutions. A second bubble and stock market crash occurred in 1873 after a similar rush into shares. The railroad system in Germany doubled in size between 1865 and 1875, and in the euphoria over the unification of Germany, thousands of people invested in the stock market in both Germany and Austria.
During the “Gruenderjahre” which occurred between 1870 and 1873, dozens of new companies came into existence. The number of companies listed on the Vienna Stock exchange increased from 28 in 1866 to 378 in 1873 while the Vienna stock market capitalization rose from $230 million in 1866 to $748 million in 1873. However, the bubble led to the “Boersenkrach” of May 9, 1873. GFD’s stock market index for Austria-Hungary doubled in value between 1866 and 1873, then gave up the whole gain by 1877.
Figure 4 illustrates the ups and down in the Vienna stock market, and the steady progression of the Vienna Stock Market prior to World War I. The large declines in 1848 and 1873 are clearly visible. Austria entered World War I in 1914 and closed the stock market until 1918. After the war, Austria-Hungary was broken up into three countries, Austria, Czechoslovakia and Hungary and parts of the empire were distributed to Poland, Russia, Romania, Serbia and Italy. Hungarian and Czech companies that had listed on the Vienna Stock Exchange moved to the Budapest and Prague Stock Exchanges.
Figure 4. Austria-Hungary Stock Market Index, 1817 to 1917
After the war, Austria suffered a hyperinflation in the early 1920s that led to a replacement of the Kronen with the Schilling in 1926. The Creditanstalt collapsed in May 1931 which led large declines in the Vienna Stock Exchange and to the closing of stock exchanges in Berlin, Budapest and Vienna. In 1931, the Creditanstalt represented the majority of bank deposits in Austria and its collapse led to a financial crisis that affected all of Europe. After its collapse, the Creditanstalt was bailed out by the government. The behavior of Austrian Creditanstalt stock in U.S. Dollars is illustrated in Figure 4.
Figure 5. Austrian Creditanstalt Price in USD, 1855 to 1931
The impact of the two World Wars on Austria’s stock market can be seen in Figure 6 which provides a price index of Austrian stocks from 1817 to 2021 in US Dollars. The two steep declines of over 90% during World War I and after World War II are clearly visible. The first decline occurred during World War I between 1914 and 1918 and an extension of the decline occurred during the hyperinflation of the 1920s, reaching its nadir in 1922. The market bounced back after the Schilling replaced the Kronen, but Austrian stocks remained unchanged until after the war, in part because the Nazis artificially stabilized stock prices during World War II. As in Germany, the adjustment to stock prices came after the war because stocks were unable to trade at realistic prices. After World War II, the Schilling lost 80% of its value as did shares. War and hyperinflation are the enemies of investors of both stocks and bonds.
Figure 6. Austrian Stock Market Index in USD, 1900 to 1960
The impact of war and inflation on bonds is illustrated in Figure 7 which shows the return to Austrian government bonds as measured in US Dollars between 1793 and 2022. There are two dramatic drops, the first during the hyperinflation of the early 1920s and the second following the currency revaluations that followed World War II. As measured in US Dollars, Austrian investors lost over 90% of their investment in both stocks and bonds between 1914 and 1949. The returns since 1950 have made up for the losses that were incurred during the wars, but the interwar losses wiped out the gains made before the war. It took 50 years to recover the losses that occurred between 1914 and 1950 as a result of hyperinflation and war.
Figure 7. Austria Government Bond Total Returns in USD, 1793 to 2022
On March 11, 1938, Austria was absorbed into Nazi Germany and the Vienna Stock Exchange became a regional German exchange trading not only Austrian shares, but German shares as well. Because of price restrictions, there was very little trading during World War II, and the Vienna Stock Exchange was officially closed on April 4, 1945. A new Schilling was introduced on November 30, 1945 and trading on the stock exchange reopened in November 1948. The nationalization of industries in Austria limited the number of shares that were traded and the market capitalization of the Austrian stock market.
Figure 8 measures the performance of the Austrian stock market since the introduction of the Schilling in 1922. As can be seen, there are periods of both stability and of rapid rises. The stock market rose in the 1950s, 1980s and 2000s and remained relatively stable during the other decades. Although over long periods of time, Austria’s returns have been inferior to other countries’ returns, during most decades, returns were comparable to those in the rest of the world for both stocks and bonds. The principal cause of the inferior returns was the war and inflation that occurred between the wars.
Figure 7. Austrian Stock Market since the Introduction of the Schilling 1924 to 2022
Bull and Bear Markets in Austria
You can divide the history of the Austrian stock market into several periods:
1771-1817 Trading in Government Bonds and Currencies, no equities
1817-1836 Austrian National Bank stock trades in Vienna
1835-1848 Railroad boom in Austria and Germany
1848-1866 Political and military setbacks in Austria
1867-1877 Austro-Hungarian Compromise and Gruenderjahre Boom and Bust
1877-1914 Pre-war growth in Austro-Hungary
1914-1918 Closure of the Stock Exchange during World War I
1919-1924 Break-up of Austro-Hungarian Empire and Hyperinflation
1924-1938 Austrian Stock market declines before World War II
1938-1950 Austria incorporated into Nazi Germany, occupied after the war
1950-1962 Post-World War II boom
1962-1995 Austria remains neutral, market trades sideways
1995- Austria is part of the European Union
Table 1 provides information on bull and bear markets in Austria over the past 200 years using the GFD Indices Austria Index. Dates for the low date of the bear market, defined as a 20% decline, is provided in the trough column with the amount of the decline from the previous peak. The date of the peak in the bull market is provided in the peak column with the amount of the increase in stocks during that bull market.
The increase between 1901 and 1924 was driven by the hyperinflation that occurred in Austria after the war; however, if you measure the index in US Dollars, there were two declines of over 90% in the stock market index between 1914 and 1950. The market declined by 96% between 1913 and 1922 and the stock market declined by 92% between 1946 and 1950. It is primarily because of these two collapses in the stock market that Austria has performed so poorly over the past 200 years.
During normal non-inflationary times, there were still several periods when the market declined by more than 60%, from January 1924 to December 1925 (64.4%), between November 1927 and January 1934 (63.1%) and between June 2007 and March 2009 (71.2%). Nevertheless, the Austrian stock market has bounced back from each of these declines.
The greatest bull market in Austria was the one that occurred after the bottom in August 1950 when the market rose 1671% between then and February 1962. The stock market also rose over 1000% between 1938 and 1947.
|
Trough |
Change |
Peak |
Change |
|
12/31/1817 |
8/31/1845 |
243.17 |
|
|
5/31/1849 |
-35.15 |
7/31/1862 |
64.44 |
|
7/31/1866 |
-32.86 |
2/28/1873 |
95.94 |
|
4/30/1877 |
-52.92 |
10/31/1881 |
81.12 |
|
1/31/1888 |
-23.48 |
5/31/1895 |
75.31 |
|
9/30/1901 |
-30.03 |
1/31/1924 |
198974.09 |
|
12/31/1925 |
-64.40 |
11/30/1927 |
56.81 |
|
1/31/1934 |
-63.16 |
3/31/1937 |
118.62 |
|
8/31/1938 |
-53.31 |
9/30/1947 |
1087.76 |
|
8/31/1950 |
-82.79 |
2/28/1962 |
1670.98 |
|
12/31/1968 |
-58.35 |
6/30/1973 |
110.61 |
|
10/31/1982 |
-36.23 |
9/22/1987 |
167.08 |
|
2/11/1988 |
-24.70 |
7/27/1990 |
655.96 |
|
1/15/1993 |
-54.30 |
5/26/1998 |
94.76 |
|
10/2/1998 |
-35.26 |
6/15/2007 |
463.03 |
|
3/9/2009 |
-71.22 |
2/14/2011 |
111.59 |
|
11/23/2011 |
-40.14 |
1/23/2018 |
110.31 |
|
3/18/2020 |
-51.10 |
Table 1. Bull and Bear Markets in Austria, 1817 to 2022
Table 2 compares the returns to the stock markets of Austria, Germany, the USA, the United Kingdom and the World between 1839 and 2019. As the data show, Austria underperformed the other three countries and the Global Index in every period except the period after 1949 when Austrian stock returns were at their nadir; however, this is largely because of the poor performance of Austria between 1914 and 1949. If you exclude that period, Austria’s equity returns are comparable to the rest of the world, but not superior.
|
Austria |
Germany |
USA |
UK |
World |
|
|
1839-2019 |
4.4 |
6.17 |
8.99 |
7.16 |
8 |
|
1899-2019 |
4.08 |
6.86 |
10.01 |
7.92 |
8.83 |
|
1919-2019 |
6.71 |
11 |
11.28 |
11.01 |
10.91 |
|
1949-2019 |
10.86 |
4.57 |
5.22 |
3.04 |
4.74 |
|
1969-2019 |
8.91 |
9.94 |
10.16 |
4.99 |
9.56 |
|
1999-2019 |
2.74 |
9.13 |
10.65 |
7.65 |
9.98 |
Table 1. Stock Market Returns, 1839 to 2019
Table 3 illustrates the returns to stocks, bonds and bills, as well as the equity risk premium between stocks and bonds over different periods of time between 1819 and 2019. The equity risk premium between stocks and bonds has been relatively small over every period of time. During the past 50 years, the Equity Risk Premium has been almost non-existent. If you adjust for inflation, the returns are even lower. In fact, between 1899 and 2019, the return to bonds was a negative 1% per annum.
|
Stock Price |
Stock Return |
Bond Return |
Bill Return |
ERP |
|
|
1819-2019 |
1 |
5.23 |
3.74 |
-0.55 |
1.44 |
|
1899-2019 |
1.14 |
4.08 |
1.97 |
-3.61 |
2.08 |
|
1919-2019 |
3.9 |
6.71 |
4.71 |
-1.74 |
1.91 |
|
1949-2019 |
8.3 |
10.86 |
8.63 |
6.3 |
2.04 |
|
1969-2019 |
6.66 |
8.91 |
8.73 |
6.44 |
0.16 |
|
1999-2019 |
2.12 |
2.74 |
2.26 |
0.82 |
0.47 |
Table 2. Returns to Austrian Stocks, Bonds Bills in USD and the ERP, 1819 to 2019
Conclusion
Austria has one of the longest histories for returns to stocks, bonds and bills of any country in the world. Data for Bonds goes back to 1788, for stocks and bills back to 1817. This allows us to compare the returns with other countries that have long-term returns. The more countries that we have data on, the better we can understand the nature of returns and the reasons why returns differ from one country to another.
While American and English investors received good returns over the past 200 years, Austrian investors received very poor returns whether they invested in stocks, bonds or bills. The principal cause of this was the impact of Austria being on the losing side of two world wars, being broken up into multiple countries after World War I, and suffering hyperinflation in the 1920s. The inflation of the 1920s and the adjustment of a deflated currency after World War II explains a large portion of the lower returns that occurred in Austria during the 200 years between 1817 and 2022. Germany suffered a similar fate between 1914 and 1949. Outside of the interwar period between 1914 and 1949, returns to Austrian stocks and bonds were comparable to returns in other European countries.
On the other hand, Austria’s share of the global stock market has shrunk from 3% of global market cap in 1914 to 0.10% of global market cap today. This certainly limits the opportunities for growth that are available to Austrian investors. There are no global leaders in Austria the way there are in Switzerland and no opportunities to take advantage of a large domestic market that Germany provides. While the United States provides evidence of what has gone right for investors, Austria provides an example of what can go wrong. Nevertheless, there is no reason to believe that stocks, bonds or bills will provide either inferior or superior returns to investors over the next few decades. It is unlikely that the inferior returns that occurred between 1914 and 1949 will ever occur in Austria again.
Data Sources
Data from Austria-Hungary was collected from several sources. The Compass, Kalender und Jahrbuch fuer Handel, Gewerbe und Industrie, provided data on stock prices, dividends and shares outstanding annually from 1868 until the 1970s. In addition to this, several newspapers were used including Die Freie Presse and Wiener Zeitung in Vienna. Once the data on stock prices, dividends, corporate actions and shares outstanding were collected, the GFD Indices for Austria, Czechoslovakia and Hungary as well as Austria-Hungary before World War I were calculated.
Bibliography
Emmerich Back, Die Aktien der Wiener Boerse, Vienna: 1931
Franz Baltzarek, Die Geschichte der Wiener Boerse, Vienna: Verlag Oesterrichischen Akademie der Wissenschaft, 1973
Compass, Kalender und Jahrbuch fuer Handel, Gewerbe und Industrie, Vienna, 1868 ff.
Rudolf Hanll, Aktien Compass der Wiener Boerse, 1924, Vienna: Compassverlag, 1924
Prager Boerse-Compass, 1929, Prague: Compassverlag, 1929
Emmerich Back, Die Aktien der Wiener Boerse, Vienna: Verlag Back, Steuermann & Co, 1931
Dr. Josef von Korosy, Die Finanziellen Ergebnisse der Actiengesellschaften Waerend des Letzten Vierteljahrhunderts (1874-1898), Berlin: Puttkammer und Muehlbrecht, 1901
Julius Michaelis, Deutschlands Eisenbahnen: Ein Handbuch fuer Geschaefsleute, Capitalisten und Speculanten, Leipzig: Amelangs Verlag, 1854, 1859 and 1863
Newspapers: Wiener Zeitung and Die Freie Presse
