Meanwhile, Barclays has predicted London's stock market has emerged from the "investment wilderness" after the Brexit deal triggered a record rush into shares exposed to the UK economy.
Mr El-Erian said the bubble "can be handled in an orderly fashion" if economies recover enough.
Vaccine hopes have created a light at the end of the tunnel for investors, although the pandemic is at its worst point in many parts of the world.
Peter Hargreaves – co-founder of investment platform Hargreaves Lansdown and one of Britain's richest men – disputed that there is bubble.
He said: "I've never known a market crash when everyone's been saying it's a bubble."
Mr Hargreaves argued that investors have already accounted for bad news about the pandemic. He conceded that some companies were "wildly overpriced", however, pointing to Elon Musk's $800bn Tesla as an example. He predicted a surge in spending driven by pent-up demand once vaccines allow a return to normal life.
"People are desperate to pamper themselves," Mr Hargreaves said, adding that the companies that have been hit hardest "are the ones that are going to bounce the biggest".
Peter Oppenheimer, chief global equity strategist at Goldman Sachs, said stimulus measures had given investors confidence to look past the pandemic.
A correction would be threatened if rising infection rates and increasing restrictions stifle the recovery, Mr Oppenheimer said. But a sustained stock market downturn is unlikely, he argued, and markets may merely plateau before a recovery kicks in.
Mr Oppenheimer said: "It isn't unusual to see the sharpest recovery as investors grow more confident that you can come out of recession."
He cautioned, however, that valuations may slip later in the year as companies begin to report post-pandemic profit figures.
Despite record highs being reached elsewhere, the FTSE 100 still has a way to go to make up the ground it lost last year. But it has outperformed all major US and European stock indices in 2021.
Barclays strategist Emmanuel Cau said UK stocks had started the year "with a bang" after being stuck in the "investment wilderness" since the Brexit vote.
The bank said a record amount of money was ploughed into domestically-focused FTSE 250 stocks after the risk of a no-deal Brexit was removed. Around £400m was pushed into exchange-traded funds tracking the index in December.
- Telegraph Media Group
