Global Financial Data has the most extensive database on historical stocks available anywhere in the world. GFD has collected data on stocks that listed on the London Stock Exchange from the 1600s until 2018. London was the financial center of the world until World War I, and many companies in emerging markets listed their shares on the London Stock Exchange before a stock exchange even existed in their country. After World War I, many foreign companies listed on the New York Stock Exchange. Using data from London and New York, we can calculate stock market indices for emerging markets during the 1800s and 1900s before stocks listed on local exchanges and local emerging market indices were calculated. This is one in a series of articles about those countries.
The Ottoman Empire
The Ottoman Empire was founded in Anatolia around 1299 and by 1683 covered south-eastern Europe up to Vienna, Turkey, Palestine, Egypt and northern Africa. The Empire began to lose territory in Europe in the 1800s, but was able to increase its power in its remaining territory. The empire allied with Germany during World War I, but as a result of its defeat in the war, the Ottoman Empire collapsed and re-emerged as Turkey, losing its territory in Europe and Africa to the British and the French.
As is illustrated in Figure 1, bondholders of Turkish debt faced two defaults. The first occurred in July 1876, and the country remained in default until December 20, 1881 when the Ottoman Public Debt Administration was formed to collect and administer the revenues pledged by the government to redeem its outstanding debt. Turkey suspended payment to Allied countries upon entering the war in 1914. The debt was partitioned on July 24, 1923 among the successor states with Turkey taking on about two-thirds of the outstanding debt; however, Turkey remained in default on the debt until 1940 when Turkish bonds stopped trading in London.
The Dersaadet Securities Exchange was established in Constantinople in 1866 and reorganized as the Istanbul Securities and Foreign Exchange Bourse in 1929. Between 1866 and 1929, a handful of blue-chip companies of the Ottoman Empire traded in London as did the government debt that the Ottoman Empire issued. There was only a handful of Ottoman companies that traded in London, which included the Ottoman Bank (1856-1930), Ottoman Smyrna-Aidan Railway Co. (1861-1930), Ottoman Gas Co. Ltd. (1882-1930), Bank of Constantinople (1872-1894) and the Smyrna and Cassaba Railway Co. (1873-1894). At its peak, the market capitalization of the Ottoman companies that were listed in London totaled only about $20-35 million.
Ottoman stocks provided adequate if unspectacular returns over the 75-year period for which we have data as is illustrated in Figure 2. You can see the bubble in bank and railway shares between 1862 and 1866 when the first railways were built in the Ottoman Empire as well as the decline in shares after 1875 when Serbia and Montenegro declared their independence from the Ottoman Empire leading to the Turkish default on its outstanding government debt and the Russo-Turkish War of 1877-1878. You can also see the decline in the price of shares when Turkey sided with Germany during World War I, and Turkey’s brief participation in the bull market of the 1920s.
Overall, stock prices rose only 0.30% between 1856 and 1929, as measured in US Dollars. If you adjust for reinvested dividends, the overall return was 4.86% giving a dividend yield over the 73 years of 4.55%, a decent if unspectacular rate of return. Since Turkey defaulted on its bonds during World War I, debtholders suffered heavy losses.
Any analysis of emerging market stocks in the 1800s and early 1900s shows that there was little overall price movement over an extended period of time, though fluctuations up and down did occur at different points in time. As in other emerging markets, banks and railways were the principal investments for foreigners with very little domestic industry to invest in. Unfortunately, we have no data on domestic shares that traded in Turkey after 1930, but one could assume that the returns were little different from the pre-1930 returns.