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Investment Ideas U.S. senator Rubio queries MSCI over inclusion of Chinese shares in major benchmark

U.S. Senator Marco Rubio has written to the CEO of global index provider MSCI Inc seeking information on why the company has included certain Chinese stocks in its widely tracked emerging market index, his office said on Thursday.

The letter forms part of a broader push by Rubio and other Washington lawmakers to crack down on Chinese companies operating in the U.S. equities markets amid a broader trade war with China. U.S. investors are exposed to Chinese companies if they are listed in the United States or included in major benchmarks.

“We can no longer allow China’s authoritarian government to reap the rewards of American and international capital markets while Chinese companies avoid financial disclosure and basic transparency, and place U.S. investors and pensioners at risk,” Rubio told MSCI’s chairman and chief executive, Henry Fernandez, in the letter dated June 12.

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A spokeswoman for MSCI did not immediately respond to a request for comment.

In 2017 MSCI said it would for the first time include stocks listed in Shanghai and Shenzhen in its global emerging market benchmark, a move that will ultimately bring billions of global investment dollars into the mainland Chinese stock markets. In February, the company said it would quadruple Chinese’ firms weighting in the index and add some mid-cap stocks.

Rubio, a Republican, raised concerns that the move could expose U.S. investors to companies with poor corporate governance and a track record of fraud. He also questioned the decision at a time when the United States is fighting China over trade policies he said are designed to undermine the U.S. economy and hurt workers.

“What MSCI is doing is allowing the Chinese Communist Party controlled market ... to access a critical source of capital and clothe itself in a facade of legitimacy.”

MSCI conducted a multiyear consultation with global investors during which the index firm secured many key changes to the Chinese market before deciding to include mainland shares. Many investors said the move was long overdue because China was dramatically underweighted in the emerging market benchmark relative to the country’s share of the global economy.

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