Melt Up Explained: How to Spot & Survive Market Surges in Australia

Australian investors have seen their fair share of market turbulence, but few events capture the collective imagination—or anxiety—quite like a ‘melt up.’ This term, once financial jargon, is now cropping up in headlines and investment podcasts as the ASX and global markets flirt with record highs in 2025. But what exactly is a melt up, and what should everyday Australians do when the market heats up faster than fundamentals seem to justify?

Understanding a Melt Up: More Than Just a Bull Run

A melt up is a rapid, often unexpected surge in asset prices, driven more by a fear of missing out (FOMO) than by improvements in economic fundamentals. Unlike typical bull markets, melt ups are characterised by:

• Sudden, sharp price increases: Asset prices—often equities, but also property or even crypto—rise rapidly over a short period.

• Investor euphoria: Newsfeeds fill with stories of overnight millionaires, and retail participation spikes as more people pile in, hoping not to miss the boat.

• Detachment from economic reality: Price rises often outpace earnings growth, GDP data, or other fundamental indicators.

The late 1990s tech boom and the 2020-21 global equities rally are textbook examples. In 2025, Australian tech, green energy, and resource stocks have seen similar surges, fuelled by both global optimism and government stimulus targeted at innovation and decarbonisation.

What’s Driving Melt Ups in 2025? The Australian Context

This year, several factors are combining to stoke melt up conditions on the ASX and beyond:

• Superannuation flows: Record amounts are pouring into super funds, boosting local equity demand.

• AI and tech innovation: Australian tech companies, especially those tied to AI, have seen valuations balloon as global investors hunt for the ‘next big thing.’

• Policy tailwinds: The 2025 Federal Budget increased clean energy incentives and R&D tax offsets, sending green stocks soaring.

• Global liquidity: Despite some central banks raising rates, Australia’s relatively stable policy environment and ongoing foreign investment are keeping cash flowing into risk assets.

Real-world example: Shares in ASX-listed battery materials companies have doubled or even tripled in the first half of 2025, far outpacing actual project milestones or profit growth. Meanwhile, retail brokerage platforms like SelfWealth and Stake report record new account openings, signalling a classic FOMO-fuelled rally.

Risks and Rewards: How Should Australians Respond?

While a melt up can create enormous short-term gains, it’s also a warning sign. These surges often end with sharp corrections—sometimes a full-blown ‘melt down.’ Here’s how to approach the current climate:

• Don’t chase the hype: Jumping into an overheated market can lead to buying at the top. Assess whether price rises are backed by real growth.

• Review your strategy: Check your portfolio’s diversification and risk settings. Are you overexposed to sectors that have already ‘melted up’?

• Stay informed: Keep an eye on policy announcements and earnings reports. In 2025, the Albanese government’s fiscal settings and the RBA’s rate decisions can quickly change market sentiment.

• Have an exit plan: Know your risk tolerance and set clear profit-taking or stop-loss levels. Don’t let euphoria override discipline.

For example, if you benefited from the lithium or AI share booms, it may be time to rebalance towards more defensive assets or global diversification before the music stops.

Spotting the Signs: Is This a Melt Up or Just a Healthy Rally?

It’s not always easy to tell a melt up from a sustainable bull market. Watch for:

• Parabolic price moves—when charts look more like rocket launches than gentle slopes.

• Valuations disconnected from reality—such as price-to-earnings ratios well above historical averages.

• Media and social media frenzy—when financial influencers, not analysts, drive the narrative.

In 2025, the ASX tech index trades at over 40x forward earnings—compared to a long-term average near 20x—highlighting how frothy some sectors have become. Meanwhile, Google search trends for ‘best stocks to buy now Australia’ hit all-time highs, a classic melt up indicator.

Conclusion: Be Calm, Be Prepared

Melt ups are exhilarating, but they rarely end well for those who get swept up late. In Australia’s 2025 market, the best move is to stay level-headed, review your goals, and remember that every surge eventually corrects. Smart investors use these periods to rebalance, not to gamble.