What might cause speculators to buy?

CHINA FINANCIAL - In Brief 08 Jul 2015 by Michael Pettis

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Broadly speaking speculators buy or sell assets for two reasons: 1. Some event is expected to cause, either for technical or fundamental reasons, a near-term change in the supply of or demand for an asset large enough to affect prices, even if only temporarily, and they transact in anticipation of that price change. This event can include technical factors, for example, a change in margin account rules, as clearly happened in China last week, or the impact of MSCI inclusion on foreign purchases, which until it was rejected last month was among the most often-cited reasons for buying Chinese stocks. This event can also include fundamental factors, for example higher-than-expected growth may set off speculative buying if it is expected to increase purchases by value investors. 2. Some event, in China the most obvious of which is government signaling, provides a reason for speculators to assume a collective response. Even if the signal has no economic value, for example an editorial in the People’s Daily extolling share purchases as patriotic, speculators will assume that the editorial sets off a self-consciously collective response that becomes self-reinforcing. There are at least two important qualities that characterize speculative markets. For a value investor the decision by buy or sell depends on his interpretation of a piece of news, while for a speculator it depends on his expectation of the collective interpretation of a piece of news. The former can range widely while the latter tends to converge very quickly. This means that while small changes in the way news is interpreted or in market sentiment will have a limited impact on overall supply or demand in a mark...