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Why ASX lithium shares are in freefall in 2019

Kenneth Hall
businessman in free fall

Last week wasn’t a great one for many Fools, with the S&P/ASX 200 Index (INDEXASX: XJO) plummeting 2.96% over the course of the week and losing $74 billion of value in just two days.

However, on Friday we saw the big-name ASX lithium mining stocks fall lower including the likes of Orocobre Ltd (ASX: ORE) and Galaxy Resources Ltd  (ASX: GXY).

So, what’s going on with the Aussie lithium miners and is it time to buy the dip or cut your losses in 2019?

Why the ASX lithium shares are falling

So far this year, pure-play lithium stock Orocobre has seen its share price fall 23.03% lower as the Aussie Materials sector has been hit hard by the ongoing US-China trade war.

The news has been worse of Galaxy Resources shareholders though, with the Galaxy share price freefalling 57.08% since the start of January to just $0.94 per share.

This is in comparison to Galaxy’s $3.85 per share valuation set less than 2 years ago in what has been a wild ride for its investors.

One of the biggest factors here has been the global lithium price while the expected boom from electric vehicles and battery storage has failed to materialise – yet.

Global lithium prices have been on the slide for quite some time which has hurt Galaxy and Orocobre earnings, while the cyclical nature of the Resources sector has amplified the share price losses in 2019.

While many believe that these declines mean you shouldn’t touch lithium stocks, an uptick in electric vehicle usage could see these Aussie miners boom in the coming decade given Australia accounts for about half of the world’s lithium production.

Should you buy ASX lithium shares?

I’m personally not enough of a risk-seeking investor to be buying ASX lithium stocks in 2019, and probably not in 2020 either.

In my view, this doesn’t constitute “buying the dip” of an undervalued stock, but rather taking a punt on the future of electric vehicles and lithium prices.

If you’re seeking exposure to the Aussie Resources sector, I think a large-cap such as BHP Group Ltd  (ASX: BHP) could be a good buy for its high dividend and potential low value in the short-term while the US-China trade war continues.

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Motley Fool contributor Kenneth Hall has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019