Global index provider MSCI Inc. is pushing back against criticism by Sen. Marco Rubio, R-Fla., that it's helping funnel billions of Americans' investment dollars into Chinese companies linked to human rights abuses and national security threats.
"Currently there is no U.S. law or regulation that prohibits an index company from creating an index containing China A securities or U.S. investors from trading in the China A market," MSCI CEO Henry Fernandez said in a letter seen by Bloomberg. China A shares are open to buying and selling by foreign investors.
Mr. Fernandez wrote in a response to questions from Mr. Rubio about the index's composition that inclusion isn't based on "subjective judgment regarding the company's intrinsic value or basic practices," but on standardized attributes such as company size and liquidity.
MSCI's response comes after Mr. Rubio sent a public letter asking the index provider for an explanation on why it added hundreds of Chinese stocks to its benchmark emerging markets index since last year and then increased the weighting to them this year. The moves paved the way for billions of dollars more in investments and retirement-savings to flow to Chinese companies.
Some stocks in the index, such as Hangzhou Hikvision, have recently been placed on a U.S. blacklist preventing business with American companies.
"It is deeply troubling that a company like Hikvision, which is complicit in China's human rights abuses in Xinjiang and is on the Commerce Department's banned Entity List, can get access to the U.S. capital markets through an MSCI index," Mr. Rubio said Monday in a statement. "I will continue to work with my colleagues in a bipartisan fashion to ensure that U.S. investors and pensioners are not at risk."
MSCI didn't respond to requests for comment.
Mr. Rubio's pressure on MSCI is part of a larger campaign by U.S. lawmakers to slow the spigot of money that has flowed from U.S. investment funds into Chinese companies. The moves come during an ongoing trade war between the two countries that has prompted U.S. officials to increase scrutiny to the money going into China.