S&P/ASX 200 Index (ASX: XJO) lithium shares appear to be all the rage among short sellers right now, with four market favourites among the 10 most shorted ASX shares.
So, why have these lithium stocks caught the attention of market pessimists? Let's take a look.
But first, what is short selling?
Short selling is a method used to effectively bet against a stock.
To short a stock, one must borrow shares from another investor for a set amount of time and then sell them on the market. Then, when it comes time to return the shares, a short seller will buy them back on the market and return them to their owner.
Thus, a short seller aims to sell the borrowed stock for a high price and repurchase it for cheaper later on, taking the difference as profit.
4 ASX 200 lithium shares in the sights of short sellers
With that in mind, one must wonder why short sellers appear so intent on ASX 200 lithium shares.
For instance, market favourite Core Lithium Ltd (ASX: CXO) has a short interest of nearly 10% right now. That makes it the fourth most shorted on the bourse.
Its peers Sayona Mining Ltd (ASX: SYA) and Liontown Resources Ltd (ASX: LTR) come in at number five and six. Their short interest is currently around 9% and 8% respectively.
Finally, 7.6% of Lake Resources N.L. (ASX: LKE) shares are currently being shorted.
Of course, there might be company-specific reasons making some of the lithium favourites short seller targets.
For instance, Goldman Sachs tips the Core Lithium share price – currently sitting at $1.02 – to fall to 95 cents. It believes the soon-to-be lithium producer's stock is overvalued.
Meanwhile, activist short seller J Capital has been vocal in its concerns about Lake Resources' Kachi Project's funding and technology.
However, it's also quite likely that concerns current lithium prices won't last could be behind the doubt.
Returning to Goldman Sachs, the broker expects lithium prices to fall substantially over the coming years. That means the four unprofitable lithium outfits might never see the sort of income their profitable peers are currently banking.
Thus, some short sellers might expect ASX 200 lithium shares to fall in the coming weeks, months, or years alongside the battery-making material's price.
Indeed, producers Pilbara Minerals Ltd (ASX: PLS), Allkem Ltd (ASX: AKE), and Mineral Resources Ltd (ASX: MIN) currently boast short interest of just 3.3%, 1.3%, and 1% respectively.
