In China smoking is going to be prohibited in “all indoor public places, workplaces and public transport” by a national law that if passed should be effective by the end of the year, according to the National Health and Family Planning Commission and as reported by chinadaily.com
A law banning smoking in places open to the public, if applied, could have a negative impact on consumption and production of tobacco as China is a major producer of tobacco.
This is the sentiment that seems to have been perceived by the stock market after the release of the news. In fact, the stocks of the biggest tobacco manufacturers saw their prices drop by the end of the trading day Nov. 23:
- Philip Morris International Inc. (PM, Financial): $88.89, -1.11 (-1.23%).
- Altria Group Inc. (MO, Financial) $64.02, -0.19 (-0.30%).
- Vector Group Ltd. (VGR, Financial) $21.26, -0.22 (-1.02%).
- British American Tobacco PLCÂ (BTI, Financial) $108.33, -0.38 (-0.35%).
- Reynolds American Inc. (RAI, Financial) $54.35, -0.18 (-0.33%)
- Japan Tobacco Inc. (JAPAY, Financial) $17.07, -0.04 (-0.23%).
According to the National Health and Family Planning Commission, with this measure to ban smoking in public places along with others such as increasing taxes and prices of cigarettes, the Chinese government intends not only to make the Chinese people more aware of the health risks of tobacco consumption but also to reduce the harmful consequences that this has on secondhand smokers.
The shareholders of major tobacco manufacturing companies may wonder whether the business of their stocks will be negatively impacted once all these measures come into force in China, one of the biggest tobacco producer and consumer countries.
In worldwide literature there are several studies that question the impact of prohibitions on smoking. But these studies couldn’t find any clear evidence that legislative measures that prohibit smoking in public places reduce tobacco consumption.
One of the most recent studies that investigated the aforementioned relation is a study titled "Legislative smoking bans for reducing harms from secondhand smoke exposure, smoking prevalence and tobacco consumption," published by The Cochrane Library (2016).
The authors of this study conclude that “the introduction of a legislative smoking ban does lead to improved health outcomes through reduction in secondhand smoke for countries and their populations. There is inconsistent evidence of an impact on smoking prevalence and tobacco consumption.”
Disclosure: I have no positions in any stock mentioned in this article.
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