Markets

Index provider MSCI on China divestment: 'We cannot tell clients what decisions to make'

Key Points
  • "MSCI is not an investor, or an asset manager, or an investment adviser," said Henry Fernandez, CEO of MSCI. "We are an intermediary. We are an agent helping our investors figure out how to invest around the world in a good way ... We cannot tell clients what decisions to make."
  • His comments came after a bipartisan group of legislators led by Sen. Marco Rubio who are pushing for divestment in China.
  • Rubio had singled out MSCI's All Country World ex-U.S. Investable Market index for including Chinese military contractors supporting militarized artificial islands in the South China Sea.
Sen. Marco Rubio, R-Fla.
Michael Brochstein | SOPA Images | LightRocket | Getty Images

Global index provider MSCI is pushing back against criticism that it's helping funnel American investment dollars into Chinese companies involved in human rights violations.

"MSCI is not an investor, or an asset manager, or an investment adviser," Henry Fernandez, CEO of MSCI, told CNBC's Becky Quick Friday at the Baron Investment Conference in New York. "We are an intermediary. We are an agent helping our investors figure out how to invest around the world in a good way ... We cannot tell clients what decisions to make."

His comments came after a bipartisan group of legislators led by Sen. Marco Rubio who are pushing for divestment in China. Amid the trade war between the U.S. and China, the Trump administration is also reportedly moving ahead with discussions around possible restrictions on capital flows into China.

"It's devastating. Right now there's a trade war going on in the world and that affects supply chains," Fernandez said. "When you start having a finance war in which you are restricting the flow of capital around the world, that disrupts the financial system of the world."

Rubio has singled out MSCI's All Country World ex-U.S. Investable Market index for including Chinese military contractors supporting militarized artificial islands in the South China Sea.

"They admitted to not doing any vetting," Rubio said on CNBC's Squawk Box on Wednesday. "They're not comparing their list of investments to companies that are sanctioned by the U.S. or the international community, companies that are involved in human rights violations. There should be some disclosure there about that reality."

Fernandez told Squawk Box on Friday that MSCI's index composition is based on standard attributes like company size and liquidity.

In August, MSCI increased the weighting of mainland China stocks in the global stock indices in a multiyear process as the Chinese market has been growing and is underrepresented in global indexes.

"If there's a law that restricts the flow of assets by the U.S. into some country, then we'll create specialized indices for those clients in that one country that take those legal and regulatory restrictions into account," Fernandez said.