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Long Live the G-25?

In the 1980s and 1990s, the world economy was dominated by the G-7 (the major industrial nations), and large capitalization stocks flourished. Think the Standard & Poor's 500.

However, small capitalization stocks have won the performance sweepstakes this decade. Think the Russell 2000.

James W. Paulson, chief investment officer at Wells Capital Management, wonders if this change in stock market leadership reflects more than simply a cyclical swing in investor sentiment. In his latest newsletter Paulson notes that large capitalization, brandname multinational corporations dominate the G-7 markets. But in the G-25, a much bigger list of dynamic countries that includes among others China, India, Malaysia Mexico, and Indonesia smaller companies in cyclical, industrial, or natural resources businesses are more commonplace and critical.

Perhaps the shift to small caps is a structural change reflecting a remarkable transformation in emerging market economies in recent years.

About the author

Chris Farrell is the economics editor of Marketplace Money.

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