Improving fundamentals and relatively attractive valuations are likely to spur further gains in China's stock market, which could maintain an edge over United States equities in the coming year, analysts at leading investment banks said.

Timothy Moe, chief Asia-Pacific regional equity strategist and co-head of macro research in Asia at Goldman Sachs, said that over the next one year, Chinese equities may continue to outperform US counterparts after posting stronger gains so far this year.

"We're hopeful that will continue," Moe said in a recent interview in Beijing. "Simple arithmetic would say that earnings growth of Chinese companies could have the potential to return mid-teens, possibly more, while the United States (return) is probably going to be high single digit. Both are good, but I think China might be able to do a bit better."

According to Moe, the US stock market had been trading at about 23 times earnings as of mid-September, with expected earnings growth of around 7 percent next year.

In contrast, the earnings growth of Chinese equities is expected to accelerate to the low- to mid-teens, while valuations remain at mid-cycle levels, offering room for further expansion, he said.

The Chinese stock market has been among the best performers in Asia this year. The MSCI China Index — which captures large- and mid-cap representation across onshore and offshore Chinese equities — had risen roughly 39 percent so far this year as of Wednesday in US dollar terms.

During the same period, the MSCI USA Index went up by about 14 percent, while the MSCI Emerging Markets Index rose by around 27 percent, according to market tracker Wind Info.

According to Kinger Lau, chief China equity strategist at Goldman Sachs, policy efforts to address excessive competition in key sectors and rebalance supply and demand, also known as the initiative to curb rat-race competition, has been key in improving profitability prospects of Chinese companies.

Lau said that if such efforts continue, a roughly 2 percentage point boost can be expected in the earnings growth of Chinese listed companies in the next couple of years, with the prices of cement, steel and lithium batteries showing signs of recovery.

However, he said that policy impact may diverge across sectors and enterprises of different sizes. "The divergence between leading enterprises and smaller firms is something we need to pay attention to."

Laura Wang, Morgan Stanley's chief China equity strategist, said that she expects earnings of Chinese listed companies to grow 7.6 percent in 2025 and accelerate to 11.1 percent by 2027, based on the bank's baseline scenario that factors in the potential effectiveness of policies to curb rat-race competition.

Electric vehicle batteries, steel and cement, and airlines may be among the biggest beneficiaries, Wang said in a podcast during the eight-day National Day and Mid-Autumn Festival holiday. The onshore A-share market was closed during the holiday.

Most analysts expect the A-share market to reopen on an upbeat note, as the recovery in domestic tourism indicated improving consumer sentiment, while US and Japanese equities hit record highs during the holiday on expectations of further monetary easing, with technology-focused stocks leading the gains.

James Wang, head of China strategy at UBS Investment Bank Research, said the Swiss bank remains positive on Chinese equities, as valuation remains attractive when compared with global peers, while the ongoing US interest rate cut cycle and a weaker US dollar are supportive for emerging markets, including Chinese equities.