Asset prices are not set for a meltdown despite the flow of money into the markets through superannuation and pension funds, Mercer Investment Consulting principal Tony Cole said.

"In both the domestic and, more particularly, international markets, valuations seem well supported by company earnings.  These ratios do not look like markets hit by a wall of money," Cole told an audience at a lunch held by the Association of Superannuation Funds of Australia (ASFA) in Sydney yesterday.

Super fund investments in Australian shares have been growing less rapidly than the local market, according to Cole

Superannuation funds have been very sophisticated in re-weighting their portfolios to reflect the changes in the market. Despite Australia pension funds having the largest home bias they have increased their allocation to international equities, Cole said

Bond prices, however, are overpriced and Cole said this will also impact on the prices of bond substitutes such as property and late stage infrastructure.

Oil exporting companies that have generated large surpluses as a result of high oil prices will broaden their investments beyond bonds so as to achieve better returns.

Cole said countries such as Norway have already established funds that have been mandated to increase its allocation to global equities from 40 per cent to 60 per cent.

Even Asian countries will look to investing in assets beyond bonds, he said. China has established an organisation which will invest a portion of its foreign reserves in ways which will produce higher returns than sovereign bonds, he said.

"Despite the recent excitement, equity markets do not look to be outside fair valuation ranges. Overall, we do not see evidence of a generalised bubble pumped up by a wave of superannuation money," Cole said.