New Equity Indices for Austria-Hungary
Bryan Taylor, Chief Economist, Global Financial Data
One of the countries whose equity history has not been explored in detail is Austria. Austria is 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. 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 the 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 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. Despite good returns in the second half of the twentieth century, Austria has one of the worst records of returns to investors of any country in the world.
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.
How did stocks, bonds and bills perform in Austria-Hungary before the country was broken up after World War I? This paper will look at the performance of Austria-Hungary and compare it to other countries.
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, and Austrian debt increased steadily between 1763 and 1913. Austria suffered inflation during the 1790s reducing the value of its banknotes to 15% of their face value. Austrian banknotes were devalued by 80%. 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 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.
Figure 2. Yields on Austrian Government Bonds from 1788 to 2021
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 could be 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 2 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. 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 3 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.