"The risk of a hard-landing of the Chinese economy is not negligible," the bank said. "The most likely trigger is that Beijing's gradual deleveraging plan gets out of control, which would lead to shadow banking failures, a liquidity crunch and financial market turmoil."
While it believes the drop in China's official manufacturing PMI to a six-month low in January was partly due to the Lunar New Year holiday, "it is getting clearer that the economic slowdown has begun again."
Its base case is for a "bumpy landing" in China, with a below-consensus forecast for 6.9 percent gross domestic product (GDP) growth in 2014 amid a continued slowdown in credit growth.
(Read more: What the EM sell-off means for European stocks)
"Decelerating investment growth will most likely follow and, more importantly, we expect disruptions in the Chinese financial market," it said, noting that although China avoided a trust product default last week, more defaults will likely occur this year.
"Having defaults is a necessary condition for a healthy financial market (thus good for the long run). Nonetheless, the transition away from 100 percent state guarantees will be nothing but risky," the note said.
(Read more: Why people fear a shadow banking crisis in China)
Meanwhile, the bank is concerned Europe's low inflation could be headed toward deflation, saying the region's reforms don't appear to be enough to raise growth and keep public debt trajectories at sustainable levels.
"Notwithstanding the current signs of a genuine cyclical upturn in Europe, we fear that the lack of growth-enhancing reform will soon again show up in disappointing nominal growth," it said.
In addition, it noted January's headline inflation of 0.7 percent was lower than expected again. It expects the European Central Bank (ECB) may soon need to act to prevent inflation from weakening further.