By Jean Yoon and Kim Yeon-hee
SEOUL, May 15 (Reuters) - Don't let the recent stock rally fool you. South Korea is still exposed to risks from North Korea's nuclear programme and a slowing economy, the top fund manager at Franklin Templeton's Korean subsidiary says.
South Korean stocks, which peaked at a four-month high this week, have risen 21 percent to 617.87 points from a low this year of 512.30 thanks to easing worries over North Korea and the loss-making credit card sector.
"The stock market may get fired up again but there is little chance the momentum will be sustained," said Oh Sung-sik, chief investment officer at Franklin Templeton Investment Trust Management Co. "It's still risky and we prefer to stay clear."
"North Korea's nuclear issues, SARS, and the slowdown in the economy are still hanging over the market. We are not confident about the corporate results in the second half either," said Oh, who manages over one trillion won ($837 million) in equity funds.
In a fresh development, the U.S. and South Korean presidents vowed on Wednesday to work with the international community to achieve the "verifiable and irreversible elimination" of North Korea's nuclear weapons.
Oh, a 40-year-old with 13 years experience in fund management, believes the country risk is still there and said Korean stocks are a better bet for investors with long-term commitments.
SELECTIVE
Risks over North Korea and the fragile economy have made Oh, who joined Franklin Templeton last July, extremely selective in picking stocks.
He likes undervalued sector leaders such as technology giant Samsung Electronics and top carmaker Hyundai Motor , but prefers to stay away from mobile operator SK Telecom and banking shares.
"We spend day after day trying to find a leading stock in each sector that's cheaper compared to its value," Oh said.
Samsung, the world's top memory chip maker and the third largest handset producer, remains the only profitable main memory chip maker while rivals Hynix Semiconductor Inc and Micron Technology Inc have splashed red ink.
"We don't find SK Telecom attractive because of the uncertainty linked to its troubled affiliate SK Global . It's one of the stocks we are avoiding."
SK Telecom shares have stayed under pressure as investors feared the mobile operator may be forced to bail out its beleaguered sister company, which is at the heart of a major accounting scandal.
Other stocks on his list, undervalued sector leaders with strong potential, are instant noodle maker Nong Shim , cosmetic firm Amorepacific and department store Shinsegae .