Stock diversification versus multinationals
I live in the US, so let's use that as an example. My two largest holdings are Apple and Berkshire Hathaway. If those were my only holdings, you would probably say I'm 100% invested in the US and that's bad. That's not really true, however.
Apple makes the bulk of its income overseas, and China is rapidly becoming (if not already) their largest market, larger than the US. I'd argue that Apple offers 'indirect diversification' since I'm exposed to the economies of other countries through holding their stock. This isn't true of all stocks though, Berkshire Hathaway's holdings are highly concentrated in the US - the sort of holdings that are that way by default, such as railroads that have all their track in the US, insurance companies that only do business in the US, etc. It has some international exposure, but relative to Apple a small amount.
The US has roughly 20% of the world's GDP, so Apple is not a bad proxy if the argument is that I should therefore have 20% of my holdings in the US, 15% in China and so on down the line to a tiny fraction of a percent of world GDP in poor countries where Apple makes a tiny fraction of a percent of its earnings. Obviously you wouldn't want all your holdings in a single company, but as far as international diversification goes it works, or at least comes a lot closer than the "home country of the stock" does to determining one's exposure to the world's economy.