Since the UK government announced its so-called “small budget”, London’s markets have been in turmoil. The turmoil fueled by recent political events has seen sterling rise to new historic lows against the dollar as more foreign investors withdraw from the country. The sell-off of the UK currency means that some money managers are starting to find value in select sectors of the UK stock market. Here’s what they’re talking about: Diageo The maker of Captain Morgan spiced rum and Johnnie Walker whiskey is one of the stocks that could benefit from the drop in the pound, according to Freddie Lait, co-founder. Founder and CEO of Latitude Investment Management. The fund manager believes that the devaluation of the pound in the past few weeks has not yet affected the share prices of companies that earn a lot of revenue in US dollars. “We ran the numbers and pushed them through our models,” said the former Goldman Sachs analyst. According to Lait. Lait also said a weaker pound would also “buffer” any drop in earnings the London-based company might report in the near future. Shares of the multinational are up 30% since the start of 2021 and continue to trade near all-time highs. The FTSE 100 Index of the 100 largest listed companies in London is an index to look for when looking for UK dollar earners, according to Alan Custis, head of equities at Lazard Asset Management. “75 per cent of their revenue is generated outside of the UK. So a weak pound really helps them in terms of translated profits,” he said. The index, known for high-dividend mining stocks and oil companies, is also likely to remain attractive despite rising government bond yields. As interest rates on UK long-term government debt have risen above 4%, yield-hunting investors often seek out safer assets by dumping stocks, which carry higher risk. “Fortunately, 45% of dividends paid out by FTSE100 companies are actually dollar-bound,” said Custis, who is also a portfolio manager. Homebuilders If interest rates rise to 6%, it will be difficult for real estate stocks to look attractive, according to Custis. But at the current rate of 2.25%, he believes they are starting to be undervalued. “Real estate stocks are falling quite clearly which is bad news,” he said. “On average, commercial property stocks in the UK are trading at a discount of around 40% to net worth, which is when you look back in history, one of the widest.” However, Bhanu Baweja, chief strategist at UBS Investment Bank, believes that while the sector looks attractive, it may be too early to buy. He added: “Although it is getting cheap, especially some areas like house construction and banking are getting cheap. It’s a bit early to get into that market.”