Mohit Bajaj, director of ETF trading solutions at WallachBeth Capital LLC, said he has seen demand for EWZ over the past week from both short-sellers and bargain-hunting "value" investors.

Selling Out

Robert Marshall Lee, investment leader and portfolio manager at BNY Mellon subsidiary Newton Investment Management, has sold all Brazilian assets in his company's $136 million Newton Global Emerging Markets Fund. Even if Temer stays in power his position has been significantly weakened, Lee said, and with much of Brazil's population opposed to fiscal restructuring measures like pension reform it would be difficult to pass them.

"What you end up doing is a very watered-down version," he said. "So the market has optimism and then gets disappointed and I think that's the likely path ahead."

Brazil and broader emerging markets are likely to end the year with lower equity prices and weaker currencies, Capital Economics senior emerging markets economist William Jackson said.

Yet Brazil's problems have so far shown little sign of leaking into the broader emerging markets sphere. The average U.S.-based emerging market fund tracked by Lipper sank by just 0.4 percent over the most recent week and pulled in $1.1 billion in new cash.

Economists warn that Brazil's social security system is one of the main threats to government finances there, with pension expenditures accounting for nearly half of its spending before debt payments. Temer's plans to streamline Brazil's pension system cleared another hurdle in Congress on Tuesday.

Current House speaker Rodrigo Maia said a vote in the full lower house could take place between June 5 and June 12, clearing the way for a final Senate vote, but many lawmakers have said they will not vote until the political crisis is resolved.

Meanwhile, some investors are moving in on what they see as a buying opportunity in Brazil. The Bovespa was last up 1.2 percent on Friday.

"If you are a patient long-term investor able and willing to stomach significant volatility, current valuations offer an attractive opportunity to gradually build both bond and equity positions," said Mohamed El-Erian, chief economic adviser at Allianz SE. "There is value but the road will be very choppy."