Romanian Stocks Before World War II

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 that country. Using data from London and the United States, GFD has calculated 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 Borsa de Valori Bucharest (BVB)

The first exchange in Romania was established in Bucharest in 1839 to trade commodities. The Bucharest Stock Exchange was inaugurated in 1882, remained closed during World War I and reopened in 1918.  The stock exchange stayed open until 1948 when the Communist government closed it down.  Trading began again on November 20, 1995 when 905 shares issued by 6 companies began trading. Today, 88 companies trade on the regulated Bucharest stock exchange and 300 companies trade on the AeRO market.

Bucharest had a stock index between the wars that was reported in the Monthly Bulletin of Statistics published by the League of Nations. With only 3 companies in the index, it was not a very broad index.  There was little change in the index between 1926 and 1944, with the index declining during the early 1930s and remaining constant until the end of World War II.  When hyperinflation hit the Romanian economy after World War II, the index rose from 121 in May 1944 to 90,800 in July 1947. Measured in US Dollars, however, the stocks fell in value, plunging toward zero by the time the stock exchange was closed by the Communists in 1948.

The Romanian Leu was linked to the French Franc in 1867, but as a result of post-World War I inflation, by 1926, there were 200 Leu to the U.S. Dollar.  After World War II, hyperinflation set in and by October 1946 there were 3 million leu to the U.S. Dollar which meant that the Romanian stock index went down from 65 to 3 as measured in U.S. Dollars.  Then the government nationalized all industry and the stocks became worthless.  

Figure 1 illustrates the Romanian Stock Exchange Index that was reported in the Monthly Bulletin of Statistics. As can be seen, there was little change until hyperinflation set in after World War II.

Figure 1. Bucharest Stock Exchange Index 1925 to 1947

There were only three Romanian companies that listed on the London Stock Exchange between 1870 and 1940.  This included the Bank of Romania (1870-1930), Romanian Consolidated Oilfields (1912-1922) and Steaua Romana (British) Ltd. (1921-1940). Between these three companies, we have 70 years of data on Romanian stocks. However, the size of these three stocks was small with the market capitalization of the three topping out at $8 million in 1914.

Figure 2. GFD Romania Stock Price Index, 1870 to 1940

As Figure 2 illustrates, Romania was never a country primed for growth.  Besides its oil fields, the country had little to offer foreigners. With the exception of the price increase around 1880, the stock for the Bank of Romania went no where during the 60 years it was listed on the London Stock Exchange. 1 Leu invested in 1870 was worth 0.32 Leu in 1940, a loss of 1.6% per annum.

As with any emerging market, the return came from the dividends, not from changes in the price of the stock. With reinvested dividends, 1 Leu invested in 1870 would have grown to 31.85 Leu by 1940, an annualized return of 5.07% and a dividend yield of 6.77% as measured in British Pounds. Not a bad return all considered.  But once World War II began, investors’ money would have been trapped inside Romania, and when the Communists nationalized industry in 1948, investors would have lost everything they had.

The Stock Market Returns to Romania

Stocks haven’t done as poorly since the market reopened in 1995.  Figure 3 measures the performance of the Bucharest BET Index, which includes 13 shares of which the top 5 represent 90% of the capitalization of the index.  Returns were poor until 2003, then shot up in a bubble that ended in 2007 which was followed by a loss of almost 82%.  Measured in Lei, the index increased from 1000 in 1997 to 10,813.6 on July 24, 2007, a ten-fold increase in 10 years.  The market then crashed down to an index value of 1887 by February 2009, a drop of over 80%.  Since then, the market has trended upward in Leu but traded sideways in USD.

Figure 3. Romania BET Index in USD, 1995 to 2018.

Romanian stocks traded in London between 1870 and 1940, and in Bucharest until 1948 when the Communists closed down the stock exchange and nationalized Romanian industry. The Romanian stock exchange reopened in 1995, and except for a bull market between 2002 and 2007 which was followed by a crash in 2008, Romanian stocks have shown little movement up or down.  Given the perspective of the past 150 years, Romanian stocks are unlikely to show much movement in the future.