=Brazil stocks plunge 10% on emerging political scandal

• Brazil President Michel Temer took over for his partner, Dilma Rousseff, in August. Dilma was impeached last year in a combination of breaking fiscal responsibility laws and being thrown under the bus by former allies because she could not stop Petrobras investigators from circling the wagons.
• For much of the past 14 years, under the guidance of the ruling Workers' Party, Petrobras was used as means to enrich political parties and its allies. Private sector companies, in partnership with the political establishment, paid bribes and were given outrageous public works contracts. 

Brazilian stocks (Sao Paulo Stock Exchange: .BVSP) fell more than 10 percent in opening trade Thursday on an emerging scandal involving the country's recently installed president.

Trading of some shares was delayed, Dow Jones reported.

The iShares MSCI Brazil Capped ETF (EWZ) (NYSE Arca: EWZ), a heavily-traded U.S. ETF that tracks Brazilian stocks, dropped more than 18 percent in morning trade.

Less than 10 months into Brazil President Michel Temer's administration, Brazilian newspaper O Globo reported late Wednesday that Temer gave his blessing to an attempt to pay a potential witness to remain silent in the country's biggest-ever graft probe.

The president told lawmakers Thursday that his government would not be toppled by allegations he was caught on tape trying to buy the silence of a potential witness in a sprawling graft investigation, a senator who was at the meeting told Reuters.

"The moves in Brazilian assets this morning reflect a concern from investors that with these new political headlines much needed reforms will be unable to pass," Gabriela Santos, vice president, global market strategist, at JP Morgan Asset Management, said in an emailed response to CNBC from Brazil.

"Many local and foreign investors were positioned in Brazil with reform approvals as the base case, and thus had a pro risk bias. As result, we are seeing some unwinding in positions this morning," Santos said. She remains positive on emerging markets overall on expectations of better growth, especially in China.