Trading after the Lunar New Year holidays has been uneventful so far, but the storm isn't over, fund management giant State Street Global Advisors warned.
"Despite the calm in last two days, we don't think this is the end," Thomas Poullaouec, managing director and head of strategy research for Asian Pacific markets, told CNBC's "Squawk Box."
The U.S. investment house, which has $2.24 trillion in assets under management, sees its own system indicator flashing "crisis mode," after starting the year in a "normal state", Poullaouec said.
Although Japan's Nikkei 225 has convulsed this month, losing almost 13 percent before bouncing back on Monday to gain over 7 percent, China's was muted yesterday in its first day back from the week-long new year holiday, closing up 0.5 percent. On Tuesday, the Nikkei lost 1 percent in early trade before hovering around flat, while Shanghai was up almost 2 percent.
The measured response in China was at odds with the tumult in global financial markets since the beginning of the year, with volatility across the equities, forex and commodities complexes due to macroeconomic uncertainties stemming from China's slowdown, and exacerbated by an oil price slump and Japan's move into negative interest rates.
State Street forecasts global growth of 3 percent this year, and 6 percent growth in China amid a soft landing. In comparison, the International Monetary Fund projects global growth of 3.4 percent and Chinese growth of 6.3 percent in 2016, according to its January forecast.
"While we do not see a trigger for a sharp slowdown, the chance of a series of small disappointments from a number of economies pushing the global economy into a shallow recession or a 'neo-recession' would seem to be around 33 percent and rising," Poullaouec wrote in a note to CNBC.
For a market rebound, there needed to be a stabilization in oil prices, economic and financial conditions. he said.
In the meantime, State Street has advised clients not to expect too much from their investments in 2016, although it expects slightly positive returns for the year. State Street is underweight in equities, flat in bonds and overweight in cash, with underweight calls for China and the rest of Asia.
"There is a term - flat is the new up," Poullaouec said.