Friday, June 08, 2012

Volume 4 Issue 23: Intelligent Investing

The Election Dream

With all the fuss about the General Election being around the corner, it has become impossible to go one day without seeing or hearing some politically related message, either from the newspaper, on websites, or even on Facebook.

If you lived in the world of Facebook, there appears to be an overwhelming feeling of anger/frustration towards the present government and if the world (or Malaysia, at least) revolved only entirely around Facebook, it would seem that the election results would be foregone conclusion.

The time for change is here. Governments all over the world are changing. It started with the Arab Springs in Tunisia, Egypt and then Libya. Then even Europe had several changes in government, albeit for completely different reasons. There was also Occupy Wall Street. There appears to be a general feeling for wanting change everywhere.

When I look at my News Feed, I get the feeling that the support for Pakatan Rakyat is overwhelming. Day after day, alleged scandals appear regarding ministers and cronies of the government. The feeling I get is that most people are outraged.

But what has always bugged me was that East Malaysia contained a disproportionate number of seats and in order for Pakatan Rakyat to make any headway, they need meaningful support in East Malaysia. In the 2008 Elections, Pakatan's showing in East Malaysia was abysmal. Just take a look at the results below:

Chart 1: 2008 Election results by number of seats won
First, let me state the obvious. We all know that Pakatan gained tremendous ground in most of the urban states (i.e. Penang, Perak, Selangor). They also won in Kelantan. But as Chart 1 shows, Sarawak, Johor and Sabah has the most number of seats up for grabs. Out of a total of 222 seats, those three states take up 82 seats, or 37% of the total. And in those three states, Pakatan only managed to win ONE seat each. So in those three states alone, BN had locked in more than 35% of the total seats.

But this is not what bothers me. What bothers me was that Sarawak, despite being a relatively large state, is sparsely populated. In terms of population, Sarawak has about 2.4 million people, which is about 8.8% of the total population. But the 8.8% of the total population are voting for 31 out of 222 seats, or 14.0%.

However, that is not the only state in which there is a huge discrepancy between its proportion of population against its proportion of seats available. No prizes for guessing, but Selangor is the other state, but only in reverse. In terms of population, Selangor has about 5.4 million people, or 19.6% of the total population. But in terms of seats allocated, it has a meagre 22 seats, or 9.9% of the total.

It doesn't take a genius to figure out that each vote in Selangor only has roughly half the power, whereas each vote in Sarawak has more than 1.5 times the power. Needless to say, despite Pakatan's overwhelming support in Selangor, it only has half the effect of what it should. And in Sarawak where BN swept almost clean in 2008, the effect is more than 1.5 times.

For those of you who are curious, the proportion of seats in all the other states roughly correspond to their respective population. Due to the skewed proportion of allocated seats, I started dreaming about an election where seats are allocated to correspond with their respective population size. So, I decided to take a look at the results if seats were allocated in that way to see if the results would have changed.

Even in my dreams, the outcome appears to remain relatively unchanged - see Chart 2.

Chart 2: Possible election results with seats allocated based according to population
I made the assumption that the proportion of seats won would remain the same. Of course, in this case, the margin that BN won by was a lot narrower. Instead of winning 140 seats against Pakatan's 82, BN would have won 128 seats against Pakatan's 95. Still a relatively wide margin. So that was the end of a fruitless dream.

Back to reality. So the next obvious question was, what would it take for Pakatan to win the next elections? Even if the number of seats were fairly allocated, Pakatan would not stand a chance if they still got killed in BN's fixed deposit states of Sarawak, Johor and Sabah.

So how many seats does Pakatan have to win in those three states if they wish to form the federal government? I started experimenting with Pakatan winning an additional 33% of seats in Sarawak, Johor and Sabah. Why 33%? No reason. Just arbitrary. Guess what?

Chart 3: What if Pakatan won an additional 33% in Sarawak, Johor and Sabah?
Now, things look pretty balanced. And indeed they are. In this case, Pakatan would win by the narrowest of margins. 112 to 110. The breakdown would be such that Pakatan would win 11 seats in Sarawak, 9 seats in Johor and 9 seats in Sabah. Nonetheless, I think this would be a disastrous result. If such a result actually transpires, it will start raining frogs. Members from both sides of the political divide would start hopping left, right and center. We probably wouldn't even know who would be the legitimate government two or three months after the elections.

Nonetheless, this is the bare minimum case in order for Pakatan to win. So, I started taking a closer look to see what it would really take for Pakatan to get that extra 33% that it needs. Table 1 shows the percentage of majority won for each seat in Sarawak. I am going to make the assumption that there will be only two parties running for each contested seat. This is not necessarily the case due to independent candidates. Based on this assumption, whatever vote that does not go to Pakatan, will go to BN and vice versa. This means that a 1% gain by Pakatan will result in a 1% loss by BN as well.

Now we are ready to test the assumptions. Assuming that since the last election 10% of the voters of BN have decided to switch over to Pakatan in this coming election. This would result in a 20 percentage point swing. Consequently, BN seats with fewer than 20% majority would swing to Pakatan's favour. This means that the eight seats highlighted in blue would swing over to Pakatan. This is short of the 11 that Pakatan needs.

Table 1: Sarawak Elections sorted by % majority
Moving on the Johor - see Table 2. With the same assumptions, Pakatan would gain a further 6 seats, ending up with 7 seats, a little shy of the 9 that is needed. If you notice, Pakatan won the Bakri seat by the narrowest of margins in 2008.

Table 2: Johor Elections sorted by % majority
Now, let's take a look at Sabah - see Table 3. With a 10% swing, only 5 seats would change hands, giving Pakatan a total of 6 seats, quite a distance from the elusive 9. Once again, the seat that was won by Pakatan was again by the narrowest of margins. Who is to say that they may not lose the seat in the coming elections?

Table 3: Sabah Elections sorted by % majority
The above analysis of course assumes that there are totally no changes in all the other states. This is quite unlikely. But I really have no idea how each and every state would vote and I am just simply going to assume that there were no changes.

Hence, based on the analysis above, Pakatan has a Herculean task ahead of them. It isn't even sufficient if it gets a 10% swing in the highlighted seats above. Even if it does get the minimal number of seats that it needs in those three states, the frog party that ensues would be catastrophic.

If I were Pakatan, I would start targeting the seats that would have the most impact. For starters, it would be those highlighted ones. After that, those that are slightly above the highlighted ones. Pakatan needs at least a 15% swing in order to even stand a chance of forming the next Federal Government.

It appears that there is still a lot of work to be done. Nonetheless, the results are not entirely disheartening. We all noticed the political tsunami that happened in March 2008. With the winds of change blowing right behind, Pakatan might just get the push that it needs. There is simply no room to rest upon its laurels, if it has any to begin with.

NB: I did not update the election results with the 16 by-elections that has happened since the 2008 elections. The analysis above is for illustration purposes only.