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The local equity market showed a much appreciated recovery amidst the continuous threat of rising global interest rates and inflation concerns.

Neels van Schaik(PSG fund manager) reports that the action was sparked by China showing less aggression towards hiking interest rates.

After all the economy is now slowing down - the latest industrial production number from China has slowed down to 35% from a previous 39% growth rate!

Cyclical shares drove the recovery while banks, which still remains attractively valued against the rest of the market, also followed suit. Banking shares are currently trading at a 30% discount to the All Share Index, which we find hard to justify.

The long-term mean level for the relative rating of the sector is sitting closer to 0.86, which is a 14% discount to the market. This equates to a 22% re-rating to the long-term mean.

One should remember of course that the All Share PE will unwind during the next 12 months due to the massive earnings growth that will come from the resource sector, which will automatically lower the PE to 11.5 to 12.

Even considering that bank earnings will also expand at around 15%, still puts the sector on a 12 month forward discount to the long term mean of around 15%.

Just based on the attractiveness of the sector's dividend yield of around 4.8% 12 months forward, one can find ample reason to get exited about the sector's prospects.