Bryan Taylor, Chief Economist, Global Financial Data
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 Suez Canal Connects the World
There were a number of companies that listed in London and Paris as well as on the Cairo and Alexandria Stock Exchanges in the 1800s and 1900s. The first company for which GFD has data is the Bank of Egypt which traded in London from 1856 until 1910. Several other companies came along in the 1860s including the Egyptian Commercial and Trading Co. (1863), Societe Financiere d’Egypt (1864) and the Anglo-Egyptian Banking Co. (1865-1920). However, the largest company in Egypt, the Compagnie universelle du canal maritime de Suez (Suez Canal Co.) went public in 1858 and ran the Suez Canal until it was nationalized by Egyptian President Gamal Abdel Nasser in 1956. GFD has data on the Suez Canal from its IPO in 1862 until 1940. During the late 1800s, the Suez Canal Co. was one of the largest stocks by capitalization that traded on either the Paris or the London Stock Exchange.
The Suez Canal was constructed between 1859 and 1869 and was officially opened on November 17, 1869. Dreams of building a canal between the Mediterranean and the Red Sea go back almost 4000 years, but until the 1800s, no one had succeeded in building a useable canal. In 1856, Ferdinand Lesseps obtained a concession from Sa’id Pasha, the Khedive of Egypt and Sudan to create a company that would construct a canal open to ships from every nation. The Suez Canal Co. was founded on December 15, 1858 with the Egyptian government owning 44% of the shares, and French and Egyptian investors owning the rest. The company issued 400,000 shares at 500 francs ($100) each, giving the company a market cap of $40 million.
Work on the canal began on April 25, 1859. Both the transcontinental railroad in the United States and the Suez Canal were opened in 1869 making it easier to conduct trade around the world. Sa’id Pasha defaulted on government bonds in 1875, and he sold his 44% stake in the Suez Canal Co. to Britain which became the largest shareholders in the canal. The British invaded Egypt in 1882 to suppress the Urabi Revolt and in 1888, the Convention of Constantinople declared the canal a neutral zone under the protection of the British. The canal was nationalized in 1956 and shareholders were paid off by 1962, though hardly at a rate that was in their favor.
As Kindleberger put it, “Said and Ismail were profligate viceroys, borrowing in Europe at high interest rates for consumption, for irrigation schemes designed to serve their own estates, for an extravagant fête to celebrate the opening of the Suez Canal, for badly planned public works. The railroads and Suez Canal benefitted Europe, for example not Egypt, and cost Egypt £12 million for shares ultimately sold to the British government under Disraeli for £4 million. In all, the Egyptian government under Ismail (after 1863) borrowed £53 million, received only £32 million, paid £35 million in debt service, but still owed £52 million on capital account and arrears of interest in 1876 when the government finally defaulted. Marlowe (a nom de plume) observes that it was easy to castigate the Europeans who made every Ismail initiative contribute to their wealth, but Egyptian mismanagement was itself spectacular.” (Charles Kindleberger, A Financial history of Western Europe, London: George Allen & Unwin, 1984, p. 224)
Figure 2 below shows the performance of Suez shares between 1862 and 1940. As can be seen, shares in the Suez Canal rose in price from 1858 until World War I, declined in price until the early 1920s, then made a dramatic rise until 1939 when World War II caused the price of Suez Canal Co. shares to crash back to the level of the 1920s.