There are still some who think it is worthwhile to diversify their stock holdings into various countries. If we were to look at the falls from highs to lows during the subprime crisis (USA) in 2008-2009, and the recent sell down owing to the Euro-crisis (July till now), there is really nowhere to hide.
The drop from highs to lows during the USA Subprime mess:
So, there is really no good reason to diversify anymore? I guess you must still diversify, but NOT across countries. You need to diversify and pick the industries. If you are in developed nations banking, you are dead. But if you are in palm oil, you are still OK. Diversification has a lot more to do with the industries you select rather than the countries you invest in.
The other thing to remember is that correlation will be very high during the initial weeks and months of extreme volatility, investors will only try to distinguish between valuations proper after the volatility has subsided.
Diversification for currencies exposure, thats a potent subject. I think its only worthwhile to consider that if your portfolio is more than a couple of million USD. Safest havens: the HKD, the SGD, the Ringgit. HKD because it is still stupidly pegged to the bloated USD, thus undervaluing the real HKD effectively. Very soon, they will have to switch the HKD peg to a basket of currencies which will include the yuan, the euro and the yen - which in effect will be a sizable revaluation.