Veteran investor Boaz Weinstein warns of a major market sell-off as First Republic reignites banking crisis fears

• First Republic's share price cratered this week, reigniting banking crisis fears.
• Veteran investor Boaz Weinstein believes the turmoil could spread to other sectors like life insurance.
• "The chance of a major sell-off in the next six months… has never been higher," he told Bloomberg.

Investors should brace for a major sell-off over the next six months as the banking turmoil spreads across other sectors, Boaz Weinstein has warned.

The veteran investor said in a recent interview that his hedge fund, Saba Capital Management, is positioned for a potential credit crunch – and that markets are underpricing that scenario even after last month's collapse of Silicon Valley Bank and Signature.

"From where I sit, the chance of a major selloff in the next six months, relative to how inexpensive it is to hedge it, has never been higher," Weinstein told Bloomberg.

Saba has already made big gains this year by betting against Credit Suisse before its cratering share price forced it to accept a takeover offer from longtime rival UBS, Bloomberg reported, citing people familiar with the matter.

Weinstein's comments came the week San Francisco lender First Republic's shares plummeted 49% Tuesday and then another 30% Wednesday, reigniting fears of a full-blown banking crisis.

The bank's shocking earnings report published after Monday's closing bell showed customers had yanked over $100 billion worth of deposits last quarter as SVB's collapse stoked bank runs at other financial institutions.

Weinstein said he's expecting the crisis to now spread, leading to more companies filing for bankruptcy and dragging on life insurance firms in particular.

Compounding that misery will be a recession within the next 12 months – and only after that economic shock will stocks and other assets look fairly valued, he added.

"There's a fog of uncertainty," Weinstein told Bloomberg. "When the fog clears, prices will better reflect fundamental value again."

Weinstein isn't the only investor to warn of a credit crunch fueling an economic downturn over the next 12 months.

German insurance giant Allianz also warned of a rapid decline in lending last month, predicting that the US economy would "crash land" into a recession as a result.

Read more: Brace for the US economy to crash-land as the banking turmoil creates a credit crunch, Allianz says