Greg Fleming said investor “disinclination for panic” had wrongfooted many more bearish market analysts, who had been disappointed by the resilience equity markets have displayed this year.
“The risk is now, that having overcome a severe sentiment test in late 2018 and another mini-test in May, investors shift into a euphoric mode and push asset prices sharply higher just as the global monetary policy environment swings back into stimulus mode.
"In other words, a ‘melt-up’ scenario in which the further extension of easy money pushes growth asset prices up too quickly for the fundamentals looks ever-more possible.”
He said the market had overcome several potential threats, such as political instability in the US, the risk of a debt ceiling breach, tensions with China and the Federal Reserve's resistance to cut rates.
There had been a lot of reasons for investors to take risk off, he said, but that would have meant they missed out on the next rebound.
AMP Capital had taken a slight overweighting to equities at the start of the year, which it took off in June. But Fleming said that was mainly to allow cash reserves to take advantage of more opportunities.
Fleming said he had been talking about the bull market as being old since at least 2018 but it had rallied more than 10% since then.
He said, while the "air was getting thinner", and there were reasons to expect short-term volatility, prices could yet increase.
He said it was worrying that growth assets were now so dependent on monetary policy support, and inflation remaining low.
The hunt for yield had driven money to all yield-producing assets, he said, and provided support for the share market from investors who might otherwise have had their money in term deposits.
Fleming said emerging markets had the potential to grow and could deliver value through the rest of this year.
"Equities in the emerging markets and in non-Japan Asia are currently trading toward the lower end of their long-term ranges, as justifiable concerns about any reversal in the multi-decade globalisation process have intensified."
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