FTSE 350 tobacco and beverages: Drinks companies continue to sparkle

This is odd, as BAT has far less exposure to European markets than Imperial, and the packaging changes would only affect 3 per cent of its EU sales. What seems to be happening is that investors have started to cash in on the outperformance of BAT's shares over the past two years to release funds for "riskier" investments, which may lay the groundwork for tobacco shares to underperform the rest of the FTSE 350 this year.

In the beverage sector, exposure to emerging markets has been a key driver of growth for companies selling alcoholic beverages. Quenching the thirst of consumers in Africa, Asia and Latin America is a lucrative business and will continue to boost sales for drinks giants SABMiller (SAB) and Diageo (DGE), offsetting weaker demand from austerity-hit developed economies.

As well as doubling capacity in Uganda with the construction of an $80m (£50m) brewery, SABMiller has opened a $100m brewery in Nigeria and expanded its African beer brand, Chibuku, into 10 countries across the continent. For its part, Diageo can't seem to satiate liquor-thirsty Chinese consumers fast enough. Just a few weeks ago, the drinks group unveiled its second whisky clubhouse in Beijing to meet growing demand from the country's super-rich. These clubs have become a clever new platform for retail sales growth as they offer limited edition products and exclusive services.

In other parts of the world, Diageo boosted its portfolio with further acquisitions in Ethiopia, China and Brazil, as well as raising its stake in Vietnamese liquor company Halico. The company is also completing an acquisition of United Spirits Limited, which would give it a tasty 27.4 per cent stake in the Indian spirits company. Diageo's rumoured participation in a potential bid for US Bourbon whisky producer Beam could further strengthen its position in the US and plug gaps in its portfolio. The availability of cheap debt for companies with Diageo's strong credit rating would also make a deal attractive on financial grounds.

Meanwhile, soft drinks manufacturers AG Barr (BAG) and Britvic (BVIC) are due to complete a merger in February, which could be good news for existing investors. Arguably, the most crucial aspect of the merger is that it could achieve significant cost savings over the next few years in what is a highly competitive market.