BlackRock, the global investment management company downgraded emerging market equities linked to China as it expects the Chinese economy to slow down despite stimulus, amid the ongoing trade war with the US.

“Our view on China has become less positive, and as a result, the rebound we were expecting in Europe is not in the cards anymore. It’s a downgrade in the broader global picture, and it’s driven by the European and China view,” Jean Boivin, head of the BlackRock Investment Institute told the media.

BlackRock is the world’s largest asset manager with $5.6 trillion in assets. The American firm now sees trade and geopolitical frictions as the principal driver of the global economy and markets.

According to the asset manager, investors are overly optimistic about China’s efforts to stimulate growth. The company’s view is based on the ongoing US-China trade war which has escalated over a year now.

Over the years China has been a manufacturing hub with cheap labour for the west, but things are changing. China’s deflationary role in world economics is also changing. These changes could potentially upset the global economy.

According to Philipp Hildebrand, analyst at BlackRock, scenarios like this could lead to negative returns in both equities and bonds as markets are not prepared for such scenarios.

As a result of the changes brought by the US-China trade war, BlackRock is downgrading their global growth outlook for the second half of this year. However, the outlook for US stocks remains positive. The firm also upgraded European stocks from negative to neutral.

Barclays Capital predicts China’s GDP growth rate fall to 5 percent because of the trade war.