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Bank failures yet to come, the debate over a single financial regulator and Bank of America Chief Executive Ken Lewis' impending departure shows the U.S. financial industry is still a long way from firm footing. Financial stocks all over the world declined almost as much as those in America but without the same fundamental catastrophes.

Many foreign banks, which refrained from poor lending practices and excessive leverage, may be smart targets for investors. Singapore, an innocent bystander on the world stage, is one place to look. While foreign companies can be difficult to access (most have American depositary receipts that trade on U.S. pink sheets), the iShares MSCI Singapore Index Fund provides a huge exposure to financial shares, at 49 per cent. The largest holding in the exchange-traded fund is SingTel, the dominant phone company, at 14 per cent of the fund. After that comes many financial stocks: DBS Group Holdings, with 12 per cent; United Overseas Bank, 11 per cent; Overseas-Chinese Banking Corp., 11 per cent; a couple of real estate investment trusts and Singapore Exchange Ltd., 4 per cent. iShares Singapore yields a hefty 3.67%.

The ETF is essentially a proxy for financial stocks, which are still down quite a bit from their highs.

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Many specialized ETFs are proxies. Other examples include the iShares All Peru Capped Index Fund , with 66 per cent materials, and the SPDR FTSE/Macquarie Global Infrastructure 100 ETF which has 89 per cent utilities.

Singapore has run budget and current-account surpluses for years, which allowed it to help its economy. Still, some economists are calling for a 5 per cent contraction in gross domestic product this year. Singapore is trying to emerge from its recession with spending policies that don't raise many concerns about too much debt, monetizing that debt or saddling future generations with a burden than can never be paid off.

The iShares Singapore ETF won't reduce portfolio volatility. According to the iShares Web site, the fund has a beta of 1.56, compared with 1 for the S&P 500. The higher the number, the more volatile the fund. Also, stock prices in Singapore won't be immune from any sort of regional or global crisis. During the Asian contagion that originated in Thailand in 1997, stocks in the benchmark Straits Times Index dropped 60 per cent in a little over six months. And during the current crisis that started in the U.S., the Strait Times Index again fell 60 per cent. The country is on a much stronger fundamental footing, but the volatility has been, and will likely be, extreme.

The big difference, though, is that the economic event as it's unfolding in Singapore is much closer to a normal contraction than in the U.S.

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