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If you think the FTSE 100 has been an incredible story this year, take a look at Russia.

After a poor start to the year, Russian equities posted returns of an amazing 30% a month between March and May. By June, Moscow's RTS index had risen a mind-boggling 85% compared to a rise of just 38% on the MSCI emerging markets index. And then markets dropped 20% in June. 

Now that's what I call a volatile stock market.

Dull it ain't

This volatility may be amazing, but it is hardly surprising. Russian capitalism was born in turbulence, and there it remains. 

In 2008 it suffered its worst downturn since the rouble crisis in 1998, as the credit crunch and tumbling oil price battered the economy. But in between it enjoyed a spectacular decade, with markets rising an astonishing 1,400%. 

That's the kind of return investors don't forget in a hurry, and many will be hoping the Russian bear roars when markets turn bullish again.

It's the oil price, stupid

Oil and gas accounts for around 20% of Russia's GDP and 60% of its exports, which, ironically, makes it as oil dependent as any western country.

The recent recovery is largely due to the price of a barrel of crude doubling from more than $32 in December to $71 today. Since the country doesn't export much else, investing in Russia can be seen as a play on the oil price, or commodities generally.

Which makes it attractive if you believe the global economy is on the rebound, because rising demand for natural resources, particularly from emerging economies, and growing inflation, should lift commodity prices further.

Russia also has an expanding middle class with money to spend, and a growing financial services market, which could help underpin a domestic recovery. But it still has a long way to go to diversify its economy and reduce its reliance on natural resources. A strengthening oil price might even impede that goal.

Bad figures then a good one

Anybody thinking of investing in Russia should wash down the next set of figures with a stiff vodka.

The IMF expects the Russian economy to shrink by 6.5% this year. The ever-gloomy Capital Economics puts the figure closer to 10%. GDP fell by more than 10% in April alone. And worryingly for its banking system, Fitch has just reported that Russian banks need to raise $60 billion to cover a soaring number of bad loans.

Just be glad that the country has $400 billion worth of reserves, the third largest in the world (although down from $600 billion last August). That should provide a nice cushion.

In, out, and in again

Russia also has a legacy of political interference and self-destructive nationalism, and this could still mar any recovery.

Three years ago, it forced Royal Dutch Shell (Amsterdam: RDSA.AS - news) (LSE: RDSB) to cede majority control in the Sakhalin 2 project to state-controlled Gazprom. This week, it invited Shell (LSE: RDSB.L - news) back to help develop two new oil and gas fields on Sakhalin Island. You can thank the credit crunch for that U-turn, but what's to say it won't start throwing its weight around again when the economy recovers?

Another danger is that business is always at the mercy of arbitrary decisions, such as prime minister Vladimir Putin's move this week to close all casinos and slot machines in the big cities.

BRIC bets and bouquets

I've got 4% of my portfolio in Russia, through Baring Emerging Markets (LSE: BEE) investment trust, which sounds about the right proportion to me. The £205 million fund is 56% invested in the country, with Gazprom and Lukoil its two largest holdings. After all the recent volatility, it is still 20% up since 1 January, but 43% down on 12 months ago.

Two popular unit trusts, Neptune Russia and Greater Russia and Jupiter Emerging European Opportunities, boast similar performance records. Those who want to spread their bets among other emerging giants Brazil, India and China might consider a fund such as Allianz RCM BRIC Stars.

To Russia with caution

As Winston Churchill famously said: "I cannot forecast to you the action of Russia. It is a riddle, wrapped in a mystery, inside an enigma." And the forecasters are still getting it wrong. On 1 June, UBS (Virt-X: UBSN.VX - news) analysts bullishly claimed its spring recovery wouldn't run out of steam, which it immediately did.

But I would also argue that no portfolio is complete without a little exposure to Russia, particularly when the global economy recovers. Although it might be wise to invest when its markets have stuttered, rather than when they has just enjoyed a spurt forwards. Which could make now a good time.

> Harvey own shares in Baring Emerging Markets.