What’s with the Core Lithium share price on Monday?

The Core Lithium share price is slumping today. But that isn’t why it’s a big day for this ASX lithium stock.

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Key points

  • Core Lithium shares have been slammed today, falling 6%
  • This is despite Core Lithium joining a new, exclusive club today the ASX 200 Index
  • Being in the ASX 200 catapults a company's shares towards the mainstream centre of the ASX investing world

The S&P/ASX 200 Index (ASX: XJO) is again giving us a shaky start to the trading week so far this Monday. At the time of writing, the ASX 200 has slipped by 1.05% and is now at just over 6,400 points. But it’s going even worse today for the Core Lithium Ltd (ASX: CXO) share price.

Core Lithium shares have lost a nasty 6.03% so far today and are now priced at $1.09 a share.

This decisive move downwards might be even more disappointing than normal today. That’s because it’s a rather big day for Core Lithium shares. This ASX lithium stock is now a card-carrying member of the ASX 200 Index.

ASX 200 Index rebalance takes effect

Yes, before today, Core Lithium did not make the cut of the ASX 200 – the flagship index of the ASX that tracks its 200 or so largest shares. Core Lithium was a part of the All Ordinaries Index (ASX: XAO), but now joins the ASX 200 as well.

Every three months, the index provider that runs the ASX 200 (and the All Ords), S&P Global, conducts a rebalancing of these indexes. Both the All Ords and the ASX 200 are market capitalisation-weighted indexes. That means they are organised based on market capitalisation. This, of course, changes every day. To reflect these changes over time, the indexes are rebalanced every quarter.

The changes that take place today were first announced back on 3 June.

So in Core Lithium’s case, we can probably put its new position in the ASX 200 down to the company’s impressive 78% or so rise in 2022 thus far.

When a share joins the ASX 200, it is normally good news for its share price. That is because it catapults a company’s shares towards the mainstream centre of the ASX investing world. Additionally, many ASX fund managers have mandates that dictate they must only choose from ASX 200 shares.

There might also be additional buying pressure from ASX 200 index funds and exchange-traded funds (ETFs). These investment products have to track the ASX 200 exactly. So any share that joins the ASX 200 also gets added to every ASX 200 index fund and ETF.

Core Lithium share price can’t escape the falls

So that’s why some investors may be surprised that Core Lithium shares are getting punished today. It being the first day of this lithium stock’s ASX 200 membership and all.

But ASX lithium stocks are among the ASX shares being hardest hit today. Core Lithium’s stablemate Pilbara Minerals Ltd (ASX: PLS) is down 4.52% so far today at $2 a share. Liontown Resources Limited (ASX: LTR) shares have lost around 2.4%. While Allkem Ltd (ASX: AKE) shares are also in the red 2%.

So even though it’s Core Lithium’s first day in the ASX 200, it doesn’t look like this has saved the company from a rough start to the week.

At the current Core Lithium share price, this now-ASX 200 lithium stock has a market capitalisation of $2 billion.

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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