Two ASX lithium shares have attracted big buying activity from a United States institutional investor.
Substantial holding disclosures lodged with the ASX in recent days reveal State Street Corporation has bought large positions in Pilbara Minerals Ltd (ASX: PLS) and Lake Resources N.L. (ASX: LKE) shares.
It has also sold some positions in Liontown Resources Ltd (ASX: LTR) shares.
What does this say to ordinary investors? Let's consider it together.
What's behind these moves in ASX lithium shares?
Firstly, a quick word on how institutional, or 'insto', investors operate.
The first thing to know is that instos tend to duck and weave in and out of ASX shares constantly.
They spend all day, every day analysing stocks, and they make numerous trades to capitalise on their expectations of significant short-term movements in share prices — in either direction.
Because they are investing huge sums of money at any given time, just a few cents of upward movement in a particular ASX share (or downward movement if they are shorting the stock) can be enough to deliver a considerable profit.
As the instos duck and weave, they will occasionally breach the 5% shareholding mark. This turns them into a 'substantial holder', which has to be declared on the ASX for all other investors to see.
Once they're a substantial holder, the ASX has to be informed of any changes in their holdings. So, we ordinary investors gain some insights into what the instos are thinking from their trading activity.
Generally speaking, institutional investor activity can give us an idea of whether a stock has good potential for growth or not. We can also glean at what price a given stock is a buy and a sell.
The insto we're looking at for the purposes of this article is American investment management giant, State Street. A survey of ASX lithium shares shows activity by State Street on three particular stocks.
Let's take a look.
Why is it selling Liontown shares?
State Street has been in and out of Liontown shares for a while, but its most recent trades were sales.
The Liontown share price has skyrocketed by 80% since the mid-cap miner announced receipt of another takeover bid from US lithium giant Albemarle (NYSE: ALB) in late March.
This month, the ASX lithium share has reset its record-high price several times. It hit a peak of $2.84 last Wednesday.
In its latest moves on Liontown, State Street became a substantial holder with 117,923,115 shares to its name — a 5.36% stake — on 28 March.
Now that was an important day.
Prior to the market open that day, Liontown announced it had received and rejected the Albemarle offer.
As my Fool colleague James reported on the day, the share price screamed about 60% higher and closed at $2.57.
State Street bought the shares with a securities lending agreement in place, which is common with short sale strategies. The disclosure does not say what price State Street paid.
State Street held its position in Liontown shares for about two weeks.
On 12 April, the Liontown share price opened at $2.66 and went as high as $2.74. State Street decided to sell enough of the ASX lithium share on this day to cease being a substantial holder. The disclosure does not say at what price State Street sold some of its holdings.
At the time of writing, State Street is no longer a substantial holder of Liontown shares. That doesn't necessarily mean it has sold out completely. It just means it no longer holds 5% or more.
Incidentally, Liontown released its March quarter cash flow and activities report today.
Why is it buying Pilbara Minerals and Lake Resources shares?
State Street has also been ducking and weaving on these two ASX lithium shares.
Pilbara Minerals is an established Australian-based producer, while Lake Resources is still building its flagship project mine in Argentina called the Kachi Project.
Lake seeks to establish itself as a 'clean' producer of lithium through the use of DLE technology. The company hopes this will make it more appealing than the rest to ESG-focused customers and investors.
In State Street's latest move, it became a substantial holder of Lake Resources shares on 19 April with a 5.01% stake.
It increased its stake to 6.03% on 24 April.
This is significant because it occurred three days after news of the Chilean Government's decision to nationalise its lithium industry and take a controlling stake in all local producers.
This news rattled investors holding ASX lithium shares with operations in South America.
Lake Resources' Kachi Project is in neighbouring Argentina. Some investors are worried that perhaps Argentina might think Chile's move is a great idea.
It appears that both of State Street's purchases are short-selling strategies, as there are details of securities lending agreements included in the purchase disclosure to the ASX.
This means it thinks the Lake Resources share price is going to fall further.
There has already been an 80% fall in the Lake Resources share price over the past 12 months.
By the way, Lake Resources also released its March quarter report today.
In relation to Pilbara Minerals shares, State Street's latest moves have also been purchases.
State Street became a substantial holder with a 5.79% stake on 16 December. Pilbara Minerals shares opened at $3.95 that day and closed at $4.10.
State Street then upped its holding to 6.79% on 19 April. The movement in the Pilbara Minerals share price was almost exactly the same on this day, opening at $3.95 and closing at $4.09.
What's the appeal of this particular ASX lithium share for State Street?
It looks to be another short selling strategy, with securities lending agreements also in place here.
Pilbara Minerals announced its first profit ever in its full-year FY22 results in August last year.
It followed this up with further growth across all major financial metrics in its half-yearly FY23 results released in February.
This included the declaration of its maiden dividend of 11 cents per share, fully franked.
The company also released its March quarter report this week.
